U.S. Treasuries, the world's largest bond market, have been a safe haven for central banks and investors. However, in recent years, the U.S. fiscal deficit has been widening and the size of the U.S. debt has been increasing, which has led to questions about the creditworthiness and yield of U.S. bonds.
Especially in 2023, the world's three largest overseas buyers of U.S. bonds – China, Japan and the United Kingdom – are selling off U.S. bonds aggressively at the same time, putting US Treasury Secretary Janet Yellen under pressure. However, what worries her even more is that the biggest receiver of U.S. debt has appeared, which shocked the whole United States. Who is this pick-up man? Why does it have so many US bonds?
China and Japan, the two largest overseas holders of U.S. bonds, have been the largest creditors of the United States, holding more than $1 trillion in U.S. debt. However, since 2019, these two countries have started to ** US debt, and in 2023, ** will be even stronger.
According to the latest data released by the U.S. Treasury Department, in September, China sold $27.3 billion in U.S. bonds, Japan sold $28.5 billion, and the United Kingdom also sold $29.2 billion. Together, these three countries have $85 billion in U.S. debt. By the end of September, China's holdings of U.S. bonds had fallen below $800 billion, leaving only $778.1 billion, the lowest since May 2009. Japan's holdings of U.S. debt also fell to 1$09 trillion, the lowest level since April 2019.
As the Federal Reserve continued to raise interest rates, Treasury yields continued to rise, and in October, the yield on 10-year Treasury bonds briefly exceeded 5%, hitting a 16-year high. The rise in yields means that investors who hold U.S. bonds will be exposed to the risk of asset depreciation. As a result, they choose to sell U.S. Treasuries in exchange for U.S. dollars or other more valuable assets.
As the U.S. fiscal deficit continues to widen and the size of U.S. debt continues to increase, the credibility of U.S. debt is in question. In order to stay afloat, the United States** is constantly raising the debt ceiling and borrowing new to pay off the old, which increases the risk of a debt crisis. If the U.S. economy does not grow as expected and does not generate sufficient revenues, it may not be able to repay its debts, leading to a default. Such a situation makes investors who hold U.S. bonds feel uneasy, and choose U.S. bonds to reduce their risk exposure.
Adjust the structure of foreign exchange reserves and diversify investment. Countries such as China and Japan have huge foreign exchange reserves, and U.S. bonds are an important part of them. However, with the changes in the global economy and finance, these countries are also adjusting the structure of their foreign exchange reserves, diversifying their investments, and improving their earnings and security.
For example, China is increasing its reserves, increasing the proportion of the renminbi in its foreign exchange reserves, and supporting the internationalization of the renminbi. Japan is increasing its reserves in other currencies such as the euro and the pound sterling to reduce its dependence on the dollar.
U.S. Treasury Secretary Janet Yellen is under pressure in the face of a massive sell-off in U.S. bonds, as the U.S. needs stable funding to keep afloat and stimulate economic recovery. However, what worries her even more is that the biggest receiver of US debt has appeared, which has shocked the whole United States. This pick-up man turned out to be Saudi Arabia, an oil powerhouse.
According to data released by the U.S. Treasury Department, in September, Saudi Arabia increased its holdings of U.S. bonds by nearly $30 billion, bringing its holdings to 1At $8 trillion, it surpassed the United Kingdom to become the third largest overseas holder of U.S. debt, after Japan and China. Since the beginning of this year, Saudi Arabia has accumulated nearly $2 trillion in U.S. bonds, becoming the largest buyer of U.S. bonds.
So, why does Saudi Arabia have so much US debt? What is its motive and purpose? Saudi Arabia is the world's largest oil exporter, and oil revenues are its main foreign exchange**.
Since the international oil market is priced on a US dollar basis, Saudi Arabia needs to maintain sufficient US dollar liquidity to cope with market volatility and risks. U.S. bonds are the safest and most liquid dollar assets, so Saudi Arabia chooses to buy U.S. bonds to reserve dollars and at the same time obtain certain returns.
Support U.S. policies and safeguard strategic interests. Saudi Arabia and the United States are long-term allies, and the two countries have close cooperation and interests in political, economic, and military fields. Saudi Arabia's purchase of U.S. bonds is also a kind of support and trust for U.S. policies, and an expression of confidence and expectations for the U.S. economy.
At the same time, Saudi Arabia also hopes to safeguard its strategic interests by buying US bonds, such as maintaining US influence in the Middle East, containing potential threats such as Iran, and maintaining the stability of the oil market.
Diversify investment risks and improve the efficiency of asset allocation. Although Saudi Arabia is an oil powerhouse, it is also aware of the uncertainty and volatility of the oil market, as well as the impact on the environment and climate. As a result, Saudi Arabia is undergoing economic transformation and diversification, reducing its dependence on oil and increasing the share of other industries and services.
In order to achieve this goal, Saudi Arabia needs to carry out reasonable asset allocation, diversify investment risks, and improve the efficiency of asset allocation. As the world's largest bond market, U.S. bonds have high safety and liquidity, and can be used as an important investment vehicle for Saudi Arabia to balance the structure and income of its asset portfolio.
For the United States, Saudi Arabia's purchase has provided the United States with stable funds**, alleviated the pressure on the supply and demand of U.S. bonds, lowered the yield of U.S. bonds, and lowered the cost of borrowing in the United States, which is beneficial to the U.S. fiscal and economy. At the same time, Saudi Arabia's support has also strengthened the confidence and influence of the United States, which is conducive to the United States safeguarding its own interests and status in the international community.
For Saudi Arabia, the purchase of U.S. bonds has provided Saudi Arabia with stable income**, maintained dollar liquidity, and maintained oil pricing, which is beneficial to Saudi Arabia's foreign exchange reserves and oil revenues. At the same time, the purchase of US bonds has also enhanced the relations and cooperation between Saudi Arabia and the United States, which is conducive to Saudi Arabia's safeguarding its security and interests in the Middle East.
Globally, Saudi Arabia's purchase has had an important impact on the U.S. bond market and the U.S. dollar market, affecting global financial stability and the monetary system. At the same time, Saudi Arabia's purchase also reflects the changes and trends in the global economy and finance, such as the challenge of the hegemony of the US dollar, the emergence of a diversified monetary system and investment channels, the increased uncertainty and volatility of the oil market, and the growing prominence of environmental and climate problems.
The intensification of the U.S. debt crisis, the sell-off of China and Japan, and the biggest "takeover" is actually Saudi Arabia, which is a surprising and noteworthy topic.
It involves the financial and economic aspects of the United States, the oil and foreign exchange of Saudi Arabia, the financial and monetary aspects of the world, and other political and strategic aspects. It has important implications and consequences for the United States and the world, and deserves our in-depth analysis and consideration.