Since 2020, China's holdings of U.S. debt have been decreasing, and now account for only 6 percent of the total3%。Like China, many other countries and institutions are also in the process of ** US debt. Despite this, private investors such as U.S. citizens and hedges** are increasingly buying U.S. bonds and becoming the new taker in the U.S. bond market. This article will explain the reasons for the decline in China's holdings of U.S. bonds and the new changes in the U.S. bond market.
There are two main reasons for the decline in China's holdings of U.S. debt. First, as the size of U.S. debt continues to grow, many central banks fear that the U.S. may eventually choose to default. The total size of U.S. debt has exceeded 24% of GDP last year$5 trillion. The pressure on the repayment of U.S. bond interest is also increasing, especially in recent years, the Federal Reserve has continued to raise interest rates, which has seriously weakened the U.S. debt repayment ability. Interest on U.S. debt payments is as high as more than $1 trillion a year, and the risk of default on U.S. debt is increasing in the long run.
Second, rising U.S. Treasury interest rates have also increased the pressure on debt repayments. Many central banks are concerned that they will not be able to earn sufficient returns on their holdings of U.S. Treasuries. From last year to the first half of this year, the number of China's ** U.S. bonds was as high as 2$15 trillion. Conversely, U.S. retail investors, who are predominantly hedged**, increased their holdings by 17 trillion US dollars, accounting for 75%, becoming the largest receiver in the U.S. bond market. It can be seen that China's ** U.S. bonds will not affect the U.S. bond market, because there are always people willing to buy them.
At the same time as the central banks of China, Japan, the United Kingdom and other countries, as well as the Federal Reserve's ** US bonds, new players entered the US bond market and took over a large number of US bonds. According to the data, U.S. individual investors, who are mainly hedging**, increased their holdings by 1$7 trillion in U.S. debt, accounting for 75% of the total. Despite the reduction in the size of China's ** U.S. bonds, China's $778.1 billion in U.S. bonds can rest easy thanks to the increase in private investors' holdings. In fact, there is a reason why ordinary Americans are willing to buy US bonds. In the past, the interest rate on U.S. Treasury bonds was close to zero, and now the interest rate on U.S. Treasury bonds is above 4%, and for Americans, U.S. bonds with high risk-free yields are very attractive investment methods.
Although the interest rate on U.S. bonds is relatively high, the ability of the American people to buy U.S. bonds is limited, and they can only meet their short-term investment needs, and cannot act as a long-term receiver of U.S. bonds. First of all, the willingness of Americans to save is low, and many families are unable to come up with a large amount of money to invest. Therefore, it is not realistic to rely on the American people to take over the US debt. Second, the scale of U.S. debt continues to expand, and it is difficult for the American people to sustain it for a long time by relying only on the investment of ordinary Americans. In the long run, there are still certain risks associated with holding U.S. bonds.
Despite the decrease in China's holdings of U.S. bonds, there has been no crisis in the U.S. bond market due to the increase in U.S. retail investors. At this stage, China does not need to worry about finding a new taker. However, in the long run, the purchasing power of ordinary Americans is limited, and the U.S. bond market still faces challenges. Overall, China's U.S. debt is not a unique phenomenon, and many countries and institutions around the world are also doing it. This change in the U.S. Treasury market reminds us that diversification and risk management remain important strategies in the global financial system. In the future, China needs to further optimize its asset allocation structure and reduce the risk exposure of U.S. bonds. At the same time, there is a need to actively look for other investment opportunities to achieve more sustainable economic development and financial security.