What's Holding Treasuries UP?

"Distrust of asset backed commerical paper, as an example, has resulted in a flooding of funds into short Treasuries as an alternative. ... As you are well aware, there are more than a fair amount of institutional investors out there mandated to hold AAA rated paper. ... The last time we checked, it's yield curve steepness that the Fed would really like to see, especially in the current environment where we believe a major end game goal of the Fed is to rebuild weakening banking system and broader financial sector balance sheets. ... We see very little value in Treasuries right here outside of a panic driven safe haven status vehicle. Are Treasury bonds the last financial asset bubble standing? ... But at current levels, ... the foreign community now has to look at Treasury investments ahead as being almost a guaranteed loser, at least on a real return basis. That means foreign buying of Treasuries from here on out is being driven by one thing and one thing only--mercantilist economics. From an investment standpoint, there's nothing else there. ... C'mon, buying Treasuries two years out at recent levels ... does have everything to do with the most basic of all human behavior and emotions-fear. Fear coupled with relative lack of AAA credit supply, or even the perception of lack of supply, can do very strange things to prices over very short spaces of time", my emphasis, Contrary Investor (CI) at http://www.gold-eagle.com/, 3 February 2008.

CI said one thing I take issue with. I think foreign buying of Treasuries has been driven by mercantilist economics for years. I can't explain China's accumulating $1.4 trillion of foreign exchange reserves any other way.