Surprisingly, the U.S. Treasury Department recently announced to the world that China had increased its holdings of U.S. debt by $34.3 billion. This is a surprise in the economic data released during the long holiday in the United States. The TIC report released by the U.S. Treasury Department details the holdings of U.S. Treasury bonds by various countries as of December last year, as well as the inflow of foreign funds into the United States in various types of ** last December. Although the report is released monthly, the data this time was unexpected, especially as China's holdings of U.S. debt increased sharply to more than $34.3 billion, back to more than $800 billion.
U.S. Treasury Secretary Janet Yellen has long been concerned about the U.S. debt problem, and she is worried about the difficulty of selling, the rising interest costs of U.S. bonds, and the continued sell-off of U.S. bonds by countries including China. This time, the data shows that China, the United Kingdom, Japan and other countries are simultaneously increasing their holdings of U.S. bonds, which may have made Yellen breathe a sigh of relief. But in reality, a deeper understanding of the true meaning behind the data may make Yellen even more worried.
China's overweight does not necessarily mean actual buying. Through simple mathematical calculations, our holdings of U.S. bonds fell to $769.6 billion in October last year, and by December last year, our holdings of U.S. bonds increased to $816.3 billion, an increase of $46.7 billion in two months, equivalent to an increase of 6068%。But that doesn't mean we've actually bought $46.7 billion in U.S. bonds. U.S. Treasuries include different varieties of various maturities, with the 10-year Treasury note being seen as the anchor point for global asset pricing, and its ** and yield affect other U.S. Treasuries. Looking at the changes in the 10-year U.S. bond trading from November to December last year, we can find that it has changed by 6434%。Given this increase, the increase in China's holdings of U.S. Treasuries is likely to be largely due to the fact that it is a passive phenomenon rather than our active purchases.
Last year, the overall 10-year U.S. Treasury bond was 273%, but China's holdings of U.S. bonds decreased by 586%, indicating that our U.S. Treasury holdings have decreased much more than U.S. Treasuries. Yellen may have more detailed data in her hands, and she may have a better idea of whether China is really the first U.S. bond, and how much it is buying. Perhaps she is still worried, but she is reluctant to reveal more truth, at least the superficial data may make more investors willing to buy US bonds.
Although China's U.S. bond holdings increased by $34.3 billion in December last year, which seems to be quite a lot on its own, it is only one in 1,000 against the background of more than $34 trillion in total U.S. debt. Considering that the total amount of foreign investment is 80561 trillion US dollars, China's increased holdings of 34.3 billion can be almost ignored. With such a small increase in holdings, the key to reminding the United States that we still have the ability to buy U.S. bonds lies in the attitude of the United States. In 2023, China's surplus in goods will be as high as RMB4,279.4 billion, and even if we buy some US bonds, the actual proportion is relatively small. We don't mind sending a signal of goodwill to the U.S. side due to the recent easing of U.S.-China relations, but we also expect a corresponding response from the U.S. side. I believe Yellen also knows this.
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