The main reasons for the massive sell-off of US bonds by countries such as China are twofold: First, the size of US debt is getting bigger and bigger, and it has exceeded $33 trillion, far exceeding the US gross domestic product in 2022 (24$5 trillion). International financial markets generally believe that the debt of the United States has been growing too fast for a long time, and the debt has reached an unsustainable level. With the expansion of the size of the U.S. debt, many central banks are worried that the U.S. will eventually be unable to repay such a large debt, so they choose to sell U.S. bonds as soon as possible to reduce the risk. Second, the high interest rate on U.S. bonds poses a certain risk to central banks in China and other countries. According to the data, the current yield on 10-year US Treasury bonds is 45%, and at one point it reached 5%. This means that the United States needs to pay a huge amount of interest expenses every year, amounting to more than $1 trillion. This will make it more difficult and stressful for the United States to repay its debt. Therefore, in order to avoid possible future risks, some central banks have chosen to sell US bonds.
In the past two years, due to excess liquidity in the U.S. financial market, domestic prices in the U.S. have continued to be the same, and inflationary pressure has been greater. In order to deal with this problem, in addition to continuing to raise interest rates, the Fed has also chosen to sell its holdings of U.S. bonds to reduce liquidity in the market, thereby curbing the risk of domestic inflation. As a result of this series of measures, inflation in the United States has fallen from 7-8% to 37%。
Unlike countries that have sold US bonds, the main "takers" who are now buying US Treasury bonds are ordinary US households and institutional investors. According to the data, 70% of the Fed's newly issued U.S. bonds were bought by the American people, and the main reason for their large purchases of U.S. bonds was to obtain a higher "risk-free return". For many years, interest rates on U.S. Treasuries were almost zero, but now they are above 4%, making them very attractive. For them, the high yield from U.S. bonds is attractive.
In general, the impact of the sell-off of US bonds by China and other countries is mainly reflected in two aspects: on the one hand, the sell-off of US bonds reduces the risk exposure of China and other countries and ensures their own financial security. On the other hand, the sell-off of U.S. bonds has also had a negative impact on the U.S., which may lead to an increase in U.S. Treasury bonds*** and interest rates, making it more difficult for the U.S. to repay its debts. The impact of the Fed's sell-off of U.S. bonds is mainly to reduce the level of inflation in the United States and curb the risk of inflation.
Through the analysis of the phenomenon of selling US bonds, we can see that the international financial market is undergoing a major transformation and adjustment. The sell-off of US bonds by countries such as China is a sign of growing concern among international investors about the pace of US debt growth, a phenomenon that reflects doubts about US dominance. At the same time, the Fed's sell-off of U.S. bonds shows that the domestic economic situation in the United States is not optimistic, and the risk of inflation is becoming increasingly prominent. This poses a major challenge to the global economic landscape and the stability of financial markets.
Against this backdrop, countries such as China should continue to strengthen the stability and reform of their domestic financial markets and seek to diversify their capital allocation to reduce their dependence on US Treasuries. At the same time, we can also see that the pursuit of high yields by ordinary households and institutional investors in the United States may expose them to certain risks in the future. Therefore, for individual investors, they should invest rationally, do not blindly chase high returns, and choose suitable investment products according to their own risk tolerance and investment goals.
All in all, the sell-off of U.S. bonds has revealed the instability of the international financial market, and for all countries, they should strengthen their understanding of and response to financial risks, and actively promote the stability and reform of the financial market to ensure their own financial security. At the same time, for ordinary investors, it is necessary to invest rationally and not blindly pursue high returns, so as not to take excessive risks. Only in this way can we maintain a relatively stable and safe investment environment in an uncertain world.