Call it the China Bond Mystery.

A Chinese currency revaluation of the kind engineered last month was expected to slam the US bond market. Letting the yuan rise means China may buy fewer Treasuries to hold it down. That, it was thought, would send yields skyrocketing and shoulder check the world's biggest economy.

That hasn't happened. The 10-year Treasury note yielded 4.16 percent on July 20, the day before China let the yuan rise 2.1 percent. It's now 4.22, a negligible rise compared with what many investors anticipated.

Is Asia's hold over US bonds waning? Hardly. China is still the second-biggest holder of Treasuries with more than US$243 billion (HK$1.9 trillion) at the end of June, up from US$165 billion a year earlier. Japan is the largest with US$680 billion. Add in Asia's other central banks and the region's Treasury holdings are about US$1.2 trillion.

Any broad move by Asia to trim those holdings would certainly hurt the US economy by driving up borrowing costs. The United States, it's often said, has built a huge and productive economy, but Asia holds the mortgage.

There are three reasons Asia hasn't yet pulled the plug on US debt, and each provides a degree of comfort it won't happen soon.

First, Asian central banks are loath to accept big losses on currency-reserve holdings. Word that even one of Asia's less influential monetary authorities is dumping Treasuries could prompt investors to do the same, boosting yields and making it more costly to continue selling.

Second, Asia's leaders are not ready to let currencies rise, even in the face of surging oil prices. There was speculation that China's move to de-peg the yuan and Malaysia's decision to scrap its dollar peg would encourage Asians to let currencies rise. To no avail. Most remain wary of seeing their exports become less competitively priced.

Third, and most important, China is making it clear that any further yuan increases may come more slowly and be smaller than investors expected. Perhaps realizing its financial system is too fragile - or that its need to create jobs is too great - China is warning speculators not to wait for bold currency moves.

Foreign investors haven't been deterred by these concerns.

Last week, a group of investors, led by Royal Bank of Scotland and Merrill Lynch, agreed to pay US$3.1 billion for 10 percent of Bank of China, the second-largest lender in the world's most-populous nation. Investors hope China's financial system isn't as rickety as many fear.

The upshot is that China may be delaying the meltdown in the US dollar anticipated by investors such as billionaires George Soros and Warren Buffett. China is doing this by, (a) resisting pressure to let the yuan soar, and (b) inspiring little urgency in Asia to reduce the region's massive Treasury holdings.

It doesn't mean it won't happen. While the United States, with its huge current-account and budget deficits, has defied the laws of economics, can it do so indefinitely? With US imbalances unnerving investors and crude oil above US$60 a barrel, it may be wishful thinking to expect the United States to avert a decline in the dollar.

Asia's reluctance to slow purchases of Treasuries is proving to be a vital shock absorber for the US debt market. Playing that role has its pros and cons for this region.

Following the 1997- 1998 financial crisis, Asian nations have been pumping up gross domestic product with weak currencies that made their exports cheap. Now that Asia is growing and stock markets are healthy, it's time to get out of the trap of export dependency.

So far, policy-makers are letting the desire to hold down currencies distract them from figuring out how to generate growth from within, or to use the money they park in US Treasuries more productively.

It's about focusing on the long run. Asia spends an inordinate amount of time and money weakening currencies to support growth a quarter or two out. That's counterproductive. It's always easier to devalue your way to growth than fix financial systems, improve corporate governance and promote entrepreneurship.

Capital flows brought in by a firm currency can be more important than the increased trade afforded by a softer one. Countries require capital to support stock markets that are playing bigger roles in economies. And foreign capital is needed to hold down interest rates.

Not all dollar purchases are about manipulating currencies. US bonds surged last week on optimism foreign demand may be rising after a Japanese government report showed that the country's investors doubled their purchases of overseas bonds. One attraction: US inflation remains tame.

China's reluctance to move rapidly to free the yuan has helped calm investors and central bankers in Asia. And for that, owners of US Treasuries have much for which to be thankful.