According to Bloomberg’s Vincent Del Giudice:

International purchases of American financial assets grew more slowly in April as China, Japan and Russia pared demand for Treasuries, underscoring the danger of U.S. reliance on foreigners to finance its fiscal deficit.

Why should we be worried?

As it has often been stated, the US is the buyer of last resort and the developing economies have been the lender of last resort. In other terms, a country like China produce goods that US consumers buy by borrowing from ... China. Even tough it is a schematic description of more complex dynamics taking place globally, it is nonetheless a truthful way to describe the imbalances that exist between the emerging economies and the developed world, most notably between China and the US.

According to AP, "China's holdings of Treasury securities represent about 10 percent of America's publicly held debt." If the Chinese stop buying (or sell) US Government bonds (the "Treasuries"), the US government will not be able to finance some of its expenditures. For instance, the Obama administration may decide to abandon a transportation project. As a result, jobs will not be created and even existing ones may be slashed. Another consequence might be that other investors might fear that if the Chinese are concerned, they might anticipate something which these investors may agree with or not. Let's assume that they agree, then they will also decide to adopt the Chinese stance and refrain from buying Treasuries. In order to attract skeptical investors, the US government will have to offer them higher yields which will significantly increase the deficit. If I am a mortgage provider I will also demand higher returns from the mortgage borrowers. Indeed, why would the risk of a US citizen be lower than that of the US Government? As a result, individuals may not be able to refinance their loans anymore, construction work may halt because of the resulting low demand.

These two occurrences are just few of the "doom" scenari that an action such as that of a Chinese "hesistation" may make real. It explains why the Obama adminstration is trying so desperately to convince countries such as China that the US Treasuries remains a strong asset and that the US Government intends to fulfill its financial obligations. Even seemingly insignificant hikes in the interest rate may terribly disrupt the effort of the administration to spur economic recovery.

As the Russian Finance Minister Alexei Kudrin said it’s "too early to speak of an alternative" to the dollar. It is nonethelless of symbolic importance that the market needed a senior official from Russia to offer such comment for its participants to lift the Benchmark 10-year Treasuries.