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As you may have heard, China is the largest creditor of the United States, holding more than $1 trillion in U.S. Treasury bonds. However, what you may not know is that China has not only not increased its U.S. debt recentlyIt also significantly reduced its holdings of U.S. Treasury bonds in half a year, selling a total of nearly $80 billion.
What's even more surprising is that a new player entered the market and bought nearly 75% of the U.S. bondsWho is this player?Why do they want to buy U.S. bonds?What's in it for them to buy U.S. bonds?
The main reason why China holds U.S. bonds is to balance the balance of payments, stabilize the exchange rate, and obtain certain returns. However, in recent years, due to changes in U.S. economic policy and the international situation, the returns and risks of China's holdings of U.S. bonds have changed.
Inflation and interest rate hike expectations in the United States. The consumer price index (CPI) in the United States rose by 6 month-on-month in January this year due to the rise in inflationary pressures in the United States due to the fiscal deficit and monetary easing in the United States4%, higher than the market expectation of 62%。This means that real interest rates in the United States (i.e., nominal interest rates minus inflation) are falling, making Treasuries less attractive.
Financial and political risks in the United States. There are some potential problems in the U.S. financial system, such as the collapse of Silicon Valley Bank and the ceiling of U.S. Treasury bonds, which could trigger a financial crisis or default crisis in the United States. If these things happen, the credibility and value of the dollar will be severely affected, which will hurt China's interests.
Portfolio diversification and optimization. Another purpose of China's holding of U.S. bonds is to improve the yield and safety of foreign exchange reserves. However, with the improvement of China's economic power and international status, China has the ability and necessity to seek more investment channels and opportunitiesto improve the efficiency and effectiveness of foreign exchange reserves.
The impact of China's sell-off on the Chinese economy is complex, with both pros and cons.
It is conducive to preventing external risks and safeguarding national interests. China's sell-off of U.S. bonds can reduce its dependence on the U.S. economy and politicsProtect China's wealth and sovereignty by reducing the loss of default or depreciation of U.S. debt and avoiding U.S. sanctions or intervention in China.
It is conducive to improving the efficiency and effectiveness of foreign exchange reserves. China's sell-off of U.S. bonds can release a part of foreign exchange to invest in other assets with more value and potential, such as **, commodities, etc., thereby improving the income and safety of foreign exchange reserves.
It is conducive to promoting the internationalization of the RMB and enhancing its international status. China's sell-off of U.S. bonds can reduce the demand for the U.S. dollar and increase the demand for the renminbi, thereby promoting the internationalization of the renminbi. At the same time, China's sale of U.S. bonds can also reduce the international influence of the US dollar and increase the international influence of the RMB, thereby enhancing China's status and voice in the international financial system.
It is conducive to balancing the balance of payments and stabilizing the exchange rate. China's sell-off of U.S. bonds can reduce international income and increase the direction of international spending, so as to balance the balance of payments and avoid excessive surpluses or deficits. At the same time,China's sell-off of U.S. bonds can also reduce its exposure to the U.S. dollar and increase its exposure to the renminbi, thereby stabilizing the exchange rate and avoiding excessive appreciation or depreciation.
It is not conducive to maintaining the level of domestic interest ratesThis has an impact on both the bond market and the ** market. If China ** US bonds, it may lead to an increase in the supply of US bonds and a decline in the demand for US bonds, which in turn will push down the yield of public bonds and the ** of public bonds. This will have a shock to the country's interest rates, which in turn will lead to a decline in the country's national debt** and an increase in yields, which in turn will have an impact on the bond market.
At the same time as major creditor countries such as China and Japan, a new player entered the market and bought nearly 75% of the U.S. bondsAccording to the U.S. Treasury Department, this player is a U.S. household and individual investor.
They bought $668 billion in U.S. bonds in the first half of this year, accounting for 69 percent of new U.S. bond issuances4%, a record high. In comparison, the Fed only bought 98%, foreign investors bought only 88%。
U.S. Treasuries are a safe asset. Against the backdrop of increasing global economic and political uncertainty, U.S. bonds, as the world's largest, most liquid and most creditworthy bond market, have a strong hedging function. The risk of default on U.S. bonds is almost zero, and the U.S. dollar is an international reserve currency, so there is no possibility of a significant depreciation.
China's sell-off of U.S. bonds is based on multiple considerations such as stop loss, avoidance, optimization, and prevention, and the sell-off of U.S. bonds has both advantages and disadvantages for China's economyNew players in the U.S. bond market are U.S. households and individual investors, who buy U.S. bonds for multiple considerations such as safety, yield, and exchange rate.
These phenomena reflect the complexity and diversity of the U.S. bond market, and also indicate future changes and challenges in the U.S. bond market. We should pay attention to the dynamics of the U.S. bond market, rationally analyze the impact of the U.S. bond market, and rationally allocate investments in the U.S. bond market to cope with the risks and opportunities in the U.S. bond market. What are your thoughts on this?