The U.S. Treasury market is currently facing a number of challenges and changes. On the one hand, the persistence of US Treasury bonds and the decline in yields have attracted a large amount of capital into the market, especially the yield on the 10-year Treasury note has fallen below 4%. On the other hand, the share of the US dollar federal reserve and the proportion of US bonds held by foreign central banks are on a downward trend, and the global phenomenon of "de-dollarization" is obvious.
1. Changes in the identity of the receiver
Initially, Yellen was optimistic about the influx of money to buy Treasury bonds. However, when she learned the identity of the specific receiver, her heart became heavy. Now, as the U.S. bond market continues to soar and is expected to hit a new high next year, Yellen is frustrated that 70% of bonds have been bought by domestic funds. Her previous plan was to diversify the risk by pushing U.S. bonds overseas to diversify the risk, but now that most of these bonds are held by natives, it will be American households who will ultimately pay for the risk of U.S. bonds.
2. The downward trend of the US dollar
The dollar's share of global central bank reserves has fallen to its lowest level since the fourth quarter of 2022 by the end of September, according to the International Monetary Organization. At the same time, the dollar index has reached the level of 101 and may fall below the 100 mark at any time. This means that the global dependence on the US dollar is decreasing, and the trend of international markets choosing to abandon the US dollar is obvious.
3. The size of the U.S. national debt and debt problems
According to the latest statistics, as of mid-December this year, the total US national debt has reached a record 3393 trillion US dollars, it only takes a few days to break through the 34 trillion mark. The size of the US Treasury is expected to account for 123% of GDP in 2023. At the beginning of this year, the U.S. Treasury debt was only 31$4 trillion, an increase of 2$5 trillion. In the current situation, the US Treasury can issue new US bonds with impunity, because the current US debt ceiling is waived, but this also allows the US debt to continue to expand.
4. Interest expenses and fiscal deficits
As the size of the U.S. Treasury increases, so does the cost of interest expenses in the United States. According to the data, the interest expense of US Treasury bonds in 2023 has reached $659 billion, and it is likely to approach one trillion dollars next year. However, compared to this, the fiscal revenue in 2023 is only 4$4 trillion, while total spending exceeds $6 trillion, and the fiscal deficit reaches $17 trillion dollars. In addition, the United States has $8 trillion in short-term debt due by the end of next year, adding to the potential debt crisis.
5. China's debt holdings
China has been continuing to ** US debt for seven months. According to the latest data, China has raised $8.5 billion in the latest month, and its total holdings of U.S. debt are now less than $770 billion. The purpose of China's continued U.S. bonds is to adjust the structure of foreign exchange reserves and gradually reduce the proportion of U.S. bonds in foreign exchange reserves. In addition, China has significantly increased its reserves** and optimized the layout of foreign exchange assets through diversified investment portfolios.
The U.S. Treasury debt problem has reached a fever pitch, and we can have the following thoughts and views on this:
1. Long-term hidden dangers of debt problems
The U.S. model of blindly expanding its debt and paying off old debt with new debt is unsustainable. When the international market loses confidence in U.S. bonds and its credibility with the U.S. dollar declines, the U.S. may fall into a debt crisis. Therefore, the United States should adopt a more responsible and sustainable fiscal policy and work to reduce debt levels.
2. Volatility risk in the U.S. bond market
Domestic funds in the United States have bought most of the Treasury bonds, which also makes domestic households a potential risk bearer. In the event of a collapse in the U.S. bond market, these households could suffer huge losses. Therefore, the United States** should be vigilant about this and take steps to reduce the burden on families.
3. Changes in the global fiscal landscape
Volatility in the U.S. Treasury market has also triggered changes in the global fiscal landscape. Central banks around the world are no longer using U.S. bonds as reserve assets as they used to be, but are even abandoning their holdings of U.S. bonds. This reflects global concerns about the US economy and a loss of confidence in the US dollar. For other countries, there is a need to strengthen the stability of the domestic economy and diversify portfolios to reduce dependence on the US bond market.
4. The impact of Sino-US economic relations
As one of the largest foreign creditors of the United States, China's continuous loss of U.S. debt has had a certain impact on Sino-US economic relations. As China continues, countries such as Japan and the United Kingdom have chosen to increase their holdings of U.S. bonds, reflecting the divergent attitudes of international markets towards U.S. bonds. China and the United States should further strengthen communication and cooperation to jointly maintain global financial stability through stable economic policies and reform measures.
There are a series of challenges and risks in the current U.S. debt problem, such as the rapid growth of the national debt, the increase in debt interest expenses, and the widening of the fiscal deficit. These problems not only pose a potential hazard to the United States, but also have a non-negligible impact on the global economy. In the face of these challenges, the United States** should adopt a responsible fiscal policy, avoid over-reliance on debt financing, and enhance the stability and sustainable development of the domestic economy. At the same time, the international community should strengthen cooperation to jointly address the global debt problem and maintain global economic stability and sustainable development through dialogue on an equal footing and programmatic cooperation.