China has gone from holding the highest point of U.S. bonds to 1The $3 trillion sell-off has gone all the way to the current $778.1 billion, a move that has attracted widespread attention in the international financial market. In fact, there are many reasons for China's sell-off of US bonds. First of all, the size of the U.S. debt is huge, exceeding $33 trillion, far exceeding the GDP of the United States in 2022, which has made many central banks worry that the United States will not be able to repay such a huge debt in the future, so they choose to cash out early. Second, the interest rate on U.S. Treasury bonds continues to rise, and the current 10-year U.S. Treasury yield has reached 45%, which means that the United States will have to pay more than $1 trillion in interest payments every year, increasing the difficulty and pressure of debt repayment in the United States. That's one reason why we're selling Treasuries. At the same time, China's sell-off of U.S. bonds is also aimed at balancing foreign exchange reserves, reducing dependence on the US dollar, and increasing the diversity of international assets.
In addition, in addition to China, central banks of other countries have also joined the ranks of selling US bonds. In September this year, China, Japan, and the United Kingdom sold a total of $85 billion in U.S. bonds. Even the Federal Reserve has begun to sell US Treasuries, and so far, the Fed has ** at least 840 billion US Treasuries. The Fed's move is mainly aimed at controlling inflation and reducing the stubbornly high price level in the country. In the past two years, inflationary pressures in the United States have been increasing due to excess liquidity in financial markets. In order to deal with this problem, in addition to continuing to raise interest rates, the Fed has also chosen to sell its U.S. bonds in order to obtain a large amount of dollars and reduce market liquidity to reduce the risk of inflation.
This series of sell-offs has had an important impact on international financial markets. First of all, the volatility of global financial markets has increased, and the bond and foreign exchange markets have been hit. Second, the rise in interest rates in the U.S. bond market has had an impact on domestic and foreign funds** as well as interest rates. In addition, the exchange rate of the US dollar will also be affected by the sell-off, which has a direct impact on the development of the world** and the economy.
It is worth mentioning that the biggest "taker" to buy US Treasury bonds today is not the national central bank, but ordinary households and institutional investors in the United States. According to the data, 70% of the Fed's new issuance of US bonds was bought by Americans. This also shows that U.S. bonds are still highly attractive and in demand for the market.
Why do ordinary U.S. households and institutional investors buy U.S. Treasuries in large quantities?The main reason is that U.S. bonds can obtain relatively high "risk-free returns". In the past few years, the interest rate on US Treasuries has been almost zero, but the current interest rate has exceeded 4%. Such interest rates are very attractive for many investors, especially against the backdrop of increased global economic uncertainty. As a result, U.S. bonds have become an important way for them to seek value preservation and stable income.
In addition, buying U.S. bonds is also a patriotic act for Americans. The purchase of U.S. bonds not only provides financial support for the United States, but also maintains the hegemony of the dollar and strengthens the economic power and international reputation of the United States. Therefore, whether it is for yield or patriotism, buying U.S. bonds is an attractive investment option for Americans.
Through China's large-scale sell-off of U.S. bonds, we can see that the international financial system is undergoing major changes. In the past, U.S. bonds were seen as a safe-haven target and a stable source of income in global financial markets, but this notion is gradually being subverted as central banks and investors sell off U.S. bonds. Against the backdrop of escalating global friction and geopolitical conflicts, countries' confidence in U.S. debt is shaking.
At the same time, China's sell-off has also given us a warning that we should speed up the reform and opening up of the capital market and improve the investment choice and rate of return of domestic investors. We should not rely too much on US dollar assets, but should diversify our investment layout to reduce our dependence on foreign currency assets such as US bonds and enhance the international competitiveness of the capital market.
Finally, China's sell-off of U.S. bonds also provides us with some inspiration for investment direction. In the context of the changing global financial world, we should focus on risk management and flexibility in asset allocation. While looking for stable returns, it is also important to focus on investment opportunities in emerging markets and the technology sector for higher long-term returns.
To sum up, through the case of China's large-scale sell-off of U.S. bonds, we can see that the global financial market is undergoing major changes. U.S. bonds are no longer the only safe-haven target and stable source of income, and central banks and investors around the world have also adjusted their asset allocation strategies. As far as China is concerned, it is necessary to speed up the reform and opening up of the capital market, improve the investment choices of domestic investors, and reduce the dependence on foreign currency assets. At the same time, we also need to focus on risk management and asset allocation flexibility, and focus on investment opportunities in emerging markets and the technology sector. Only in this way will we be able to remain competitive in the midst of changes in the global financial markets and achieve sustainable investment returns.