A recent $61 billion five-year Treasury auction was surprisingly deserted, with sales hitting a record high in nearly two years, but with a price of 4The bid rate of 055%** was 2 basis points higher than expected and the largest tail spread in a year and a half. The bid multiple also hit a new low in a year and a half, which is confusing. It is worth noting that the U.S. primary dealer has become the last taker, and the allocation ratio has reached a new high in a year and a half, which is almost like the United States is playing a game with itself.
This reflects the market's indifference to this round of U.S. bond auctions. There are two reasons for this phenomenon:
First of all, the strong US PMI data has weakened the market's expectations for a US dollar interest rate cut, and the US dollar interest rate cut usually corresponds to the US Treasury *** The current prospect of a US dollar interest rate cut is unclear, making investing in US bonds a certain risk.
Second, the market is skeptical about the medium-term economic expectations of the United States, especially the unclear signals of the US dollar's interest rate cuts and interest rate hikes, resulting in uncertainty about the future direction of the US economy. Investors choose to wait and see, and are reluctant to blindly intervene.
However, what is puzzling is that China increased its holdings of U.S. debt by $12.4 billion during this period, pushing the size of U.S. debt to $782 billion, ending seven months**. What is the reason why China has become a pick-up man?
First, in November, the top three overseas creditors of U.S. bonds, including China, Japan and the United Kingdom, all increased their holdings of U.S. bonds. This is partly related to the strengthening of the market's expectations for the US dollar interest rate cut and US bonds*** at that time. As a result, China's increase in holdings in November was largely passive.
Judging from China's behavior of increasing its holdings for 14 consecutive months, China's long-term determination to de-dollarize will not change. It is expected that in December and January, as the expectation of a US dollar rate cut weakens, China may once again ** US bonds.
It is worth noting that our country is no longer dependent on the dollar policy for economic development. In 2024, whether the US dollar raises interest rates or cuts, China will continue to promote the development of high-end industries, promote internal circulation through a number of policies, and comprehensively drive steady economic growth.
In stark contrast, there is a growing risk that the Fed will keep interest rates higher for longer due to weak Treasury issuance data. This may be a strategy for China to buck the trend and increase its holdings of U.S. debt through flexible asset allocation to cope with global economic uncertainty.