Recently, many central banks have been in unison and collectively held US Treasury bonds. This phenomenon has attracted widespread attention from the outside world, and many analysts have speculated about the reasons and effects.
China, Japan, the United Kingdom and other traditional major overseas holders of U.S. bonds, in recent years, have been successively leading the U.S. bonds. Data shows that in September 2022 alone, the above three countries sold nearly $90 billion in U.S. bonds. Behind this move is inseparable from the deteriorating fiscal situation of the United States itself and the judgment of related economic risks.
The U.S. federal deficit has remained above 15% of GDP for many years, and the balance of the national debt has soared from $20 trillion to nearly $34 trillion in just a few years.
Interest expense alone is as high as 1. per annum5 trillion yuan, which seriously squeezes out the structure of fiscal expenditure. What is even more worrying to the outside world is that the GDP growth rate of the United States showed an artificial "decoupling" state last year, with a year-on-year increase of more than 20%, completely relying on the Federal Reserve's continuous interest rate hikes to drive the appreciation of the dollar. Once the policy environment changes, there is a systemic risk that the growth rate of the US economy will plummet.
At the same time, the outside world judges that the Federal Reserve will continue to hold U.S. bonds in the coming period. This is mainly a tightening of financial conditions to curb inflation in the United States.
The data shows that after several consecutive rounds of interest rate hikes, the US CPI has fallen from 7-8% last year to 37%, the policy effect began to appear. It can be seen that the Fed's action is mainly out of the need to control the domestic economy, rather than external signals.
Judging the increasing risk of U.S. bonds, China and other major overseas holders of U.S. bonds have adopted different response strategies.
Taking China as an example, it mainly slows down the growth rate of foreign exchange reserves to improve US bonds, while countries such as Japan and the United Kingdom choose to directly cash out part of their foreign exchange reserves to support the exchange rate of their own currencies. Although the approaches of various countries are different, the common denominator is that they are intended to guard against the potential impact of US debt risks on their economies.
In stark contrast to overseas central banks**, US households and private institutional investors are aggressively buying up Treasuries. Seventy percent of new U.S. bond issuance in 2022 was bought by U.S. individuals.
The main reason is that the current high yield on US Treasuries (around 5%), which provides an attractive risk-free yield. But it also means that once demand for new bonds shrinks, the US** will face more refinancing pressure.
The current situation facing US bonds can be described as both internal and external troubles. Overseas investors are worried about the risk of a possible debt default in the future, while the Fed needs to deal with economic issues such as domestic inflation.
This makes it difficult for the United States to realize its original hope of passing on the crisis through bond issuance. The future direction of U.S. bonds and their impact on the international economic environment remains to be observed.