The recent release of data on US bond holdings has caused US Treasury Secretary Janet Yellen to feel anxious. In the past, the United States has always tried to sell large amounts of U.S. debt to foreign countries in order to reduce its own burden. However, the situation has changed now, and the United States has not marketed its bonds to other countries as it wants, and it is ordinary families and people in the United States who may end up paying the bill. This makes U.S. debt a problem for both the Fed and the U.S. Treasury.
In the past, the U.S. has been issuing debt on a large scale, but fortunately it was able to spread the risk by selling U.S. debt to other countries. Today, however, the situation is very different, and the US sales strategy seems to be failing. On the contrary, the latest data shows that the top three holders of US bonds, such as Japan and the United Kingdom, as well as China, have sold US bonds aggressively. In September alone, the combined sell-off of the three overseas countries amounted to $89 billion. More worryingly, Bank of America and Wall Street asset managers are no longer buying large amounts of US Treasuries. In the end, it is worrying that the main body of the purchase of US bonds has turned out to be ordinary American households.
For Fed Chair Jerome Powell, he has been faced with a difficult trade-off between raising interest rates and stopping them. In the middle of the year, Powell tried to stop raising interest rates, however, inflation showed a clear **, which forced him to raise rates again. However, the rate hike was followed by a faster pace of economic decline, which forced the Fed to pause its rate hikes. Curiously, Treasury yields remain high regardless of whether the Fed raises interest rates or not. The yield on the last 10-year Treasury note has fallen slightly, albeit slightly, to around 4Around 3%, slightly lower than the peak of 5%, but still relatively high compared to the 1% before the rate hike. Yellen may blame the Fed not only for rising Treasury yields due to Fed rate hikes, but also for the collapse of US Treasury bonds due to the Fed's massive balance sheet reduction and sell-off. This puts Yellen under tremendous pressure and challenges.
Fed Chairman Jerome Powell faces the thorny question of balancing monetary policy and economic stability. He needs to carefully consider the consequences of raising interest rates and stopping them, as both could have far-reaching effects on the economy. In the middle of the year, Powell decided to try to stop raising interest rates once, but it turned out to be unexpectedly inflationary**, which forced him to raise interest rates again to bring inflation under control. However, as signs of slowing economic growth became apparent, the Fed was forced to pause its interest rate hikes. What is puzzling is that US Treasury yields have remained at relatively high levels, with or without a rate hike. This leaves Yellen likely to place the blame on the Fed's policy choices, including the pace of rate hikes and massive balance sheet reduction. They are concerned that these decisions could lead to a rise in Treasury yields and lead to US Treasuries*** This is a huge challenge for the US economic and financial system, and Yellen needs to take action to address it.
At one time, Bank of America was one of the main buyers of U.S. Treasuries. Especially after the pandemic, the United States issued a large amount of money, which led to a significant increase in bank savings. In order to allocate these assets, many banks have bought a variety of US Treasuries, especially US Treasuries. However, in March of this year, the collapse of Silicon Valley Bank caused economists to think. They found that banks bought a large number of U.S. bonds after their savings increased, but they did not expect that in recent years, U.S. bonds have shown a continuous trend, which led to a serious book loss of Silicon Valley Bank, which seriously impacted the confidence of depositors, and then a run occurred, which eventually led to the bank's bankruptcy. Since the previous huge losses are still being cleared, it is not possible for banks to buy US bonds on a large scale at this time.
Second, Wall Street asset managers are also important buyers of U.S. Treasuries. For example, large ** companies such as Vanguard and BlackRock, as well as other asset managers, hold huge amounts of assets in custody, which also means that they hold large amounts of US debt, even more than the vast majority of countries. However, U.S. bonds have continued to shrink significantly in recent years, causing the assets managed by these institutions to shrink significantly, and the net value of their ** has also been declining, and some investors have redeemed their funds. Even investors who have not redeemed their funds put tremendous pressure on asset managers. Therefore, in the current situation, it is unlikely that they will buy US bonds in large quantities.
Bank of America was once one of the major buyers of U.S. Treasuries. Especially after the pandemic, bank deposits have increased rapidly due to the massive issuance of money in the United States. In order to allocate these assets, many banks have bought a variety of US Treasuries, especially US Treasuries. However, the collapse of Silicon Valley Bank in March this year caused people to think. Economists traced the crisis of Silicon Valley Bank and found that the main problem was that the bank bought a large number of U.S. bonds to allocate increased deposits, but they did not expect that in recent years, U.S. bonds have been **, resulting in serious losses on the books of Silicon Valley Bank, which seriously shook the confidence of depositors, and then triggered the risk of a run, which eventually led to the bank's bankruptcy. At the moment, banks are still cleaning up these huge losses, so it is unlikely that they will be able to buy large amounts of US Treasuries.
Second, Wall Street asset managers are also important buyers of U.S. Treasuries. For example, large ** companies such as Vanguard and BlackRock, as well as other asset managers, hold huge amounts of assets in custody, which also means that they hold large amounts of US debt, even more than most countries. However, due to the continuous ** of US bonds in recent years, the assets managed by these institutions have shrunk significantly, and the net value of their ** has also been declining, and some investors have redeemed their funds. Even investors who do not have funds to redeem them put tremendous pressure on asset managers. Therefore, in the current situation, it is unlikely that they will buy US bonds in large quantities.
Finally, the latest data shows that in the past few months, the U.S. Treasury Department has received new authorization to start selling U.S. bonds to the market, and it is mainly ordinary American households that buy U.S. bonds, that is, **. Nearly 70% of U.S. bonds were bought by them. However, Yellen is well aware of the risk of a possible future default on US bonds, so the most desirable scenario for her is of course to sell US bonds to other countries. However, the reality is the opposite, and the US debt is flowing back into the hands of the American people. In the event of an escalation of the crisis in the future, it may end up being American families who will be affected.