On Feb. 17, the U.S. benchmark 10-year Treasury yield hit its highest since December 2019 to 2 percent above, as St. Louis Fed President Bullard again called on the Fed to speed up the pace of interest rate hikes, saying four consecutive months of strong inflation reports provided a reason to speed up action, he called for a one-percentage point hike at three meetings on July 1 and began shrinking the balance sheet in the second quarter, followed. The minutes of the Fed's latest January interest rate policy meeting show that Fed governors believe that inflation is too high to support an early interest rate hike, or accelerate the pace of tightening if necessary, but the lack of new clues to the march rate hike and balance sheet reduction is less of a hawkish surprise for the market.
Fed Chairman Jerome Powell
The January CPI released by the U.S. Labor Department hit its biggest year-over-year increase of 7.5% in 40 years (previously, 7.0%) and accelerated for the sixth consecutive month, fueling speculation that the Fed would raise rates by 50 basis points in March to 80%, which also led to the yield of 10-year inflation-protected bonds rising above negative 0.5% for the first time since June 2020.
Monthly inflation trends in the United States
According to the latest data monitored by Bloomberg on February 15, the current trading conditions of the US Treasury market are the worst in more than a decade, the US Treasury price continues the decline in the past seven weeks (bond yields are inversely proportional to the price, the rise in yields represents a sell-off greater than the purchase volume), the yield curve is steeper, making investors lose a lot, the US Treasury Department's weak Treasury auctions have also exacerbated the market selling pressure, as of February 14, in the 8 weeks, the US Treasury outflow scale rose to 81.2 billion US dollars, it should be noted that in last year's 10 After falling into negative territory for the first time in the month, the 20- and 30-year Treasury yield curves continued to invert.
This also makes wall Street short U.S. Treasuries now a crowded trade, traders firmly believe that U.S. Treasury yields are bound to climb to 3%, JPMorgan Chase's Feb. 13 survey of global customers showed that U.S. Treasury net short positions have risen to their highest level since October 2017, and the indicator 10-year Treasury has risen 45 basis points since the beginning of the year. The Treasury Index's total return in 2021 was even more negative at 2.3 percent, the first time in nine years, and the Deutsche Bank report also showed that as of Feb. 13, up to 85 percent of bonds of all maturities, including high-yield junk bonds, had negative yields on bonds of all maturities, net of inflation.
According to the latest international capital flows report released by the US Treasury Department on February 16 (the official data of US treasuries will have a two-month delay practice), in December 2021, the net outflow of foreign capital from large institutions including global central banks and overseas private funds was 33.4 billion US dollars, and the net outflow of official funds of global central banks was 19 billion US dollars, and it was the largest outflow of US treasury funds since May last year, of which the global central bank net sold US debt for the seventh consecutive month, at the same time, Domestic private investors sold $37.6 billion in long-term foreign securities, while overseas investors increased their holdings of U.S. long-term securities with net purchases of $76.9 billion.
A corner of the U.S. printing house
It is worth noting that the US Treasury report also shows that in December 2021, China significantly reduced its holdings of US Treasuries by US$12.2 billion to US$1.0687 trillion, ending the previous three consecutive months of sharp increases in US Bonds.
As shown in the chart below, after a slight increase of US$600 million in September 2021, a significant increase of US$17.8 billion in October, another significant increase of US$15.4 billion in November. In August last year, China significantly reduced its holdings by $21.3 billion, its holdings in U.S. Treasuries reached its lowest level since 2010 to $1.047 trillion, and overall, China has reduced its net modesty by $3.6 billion in 2021 and remains the second largest overseas creditor of U.S. Treasuries.
Japan's U.S. Treasury position in June 2019 surpassed China to become the largest creditor of the United States, and has remained so far, Japan reduced its holdings of U.S. Treasuries by 23 billion U.S. dollars to $1.304 trillion in December 2021, which also means that both China and Japan ended their previous consecutive collective increases in U.S. Treasuries in 12 years last year.
However, because there will be a two-month delay in official US Treasury data, we expect to see more sell-offs in January and February this year as the 10-year US Treasury yield shock intensifies in the past month. For example, the latest report of the US Treasury Department shows that in December last year, in addition to the two major creditors of China and Japan began to significantly reduce their HOLDINGs of US bonds, the major holders of 18 major US bonds, including Luxembourg, Switzerland, Brazil, France, India, Singapore, South Korea, Norway, Thailand, the Netherlands, Australia, Vietnam, Poland, the Philippines, the United Arab Emirates, Italy, Colombia and Chile, also reduced their HOLDINGs of US bonds to varying degrees. A small number of creditors, such as Ireland and Canada, have increased their holdings of US bonds (please refer to the chart below for details).
What worries U.S. Treasury investors the most is that the Fed, the largest receiver of U.S. Treasuries, will also withdraw from bond-buying operations in March this year, and may even begin to shrink its balance sheet (throw out U.S. Treasuries) in the second quarter, which also means that in 2022, those big institutional investors in U.S. Treasuries who originally chose to arbitrage will also follow the Fed to sell U.S. Treasuries, so that demand will shift to strategic assets such as gold. As shown below by the IMF and the World Gold Council, we note that the replacement trend from US bonds to gold has continued in recent months, and the latest data is feeding back this trend.
According to the latest report released by the World Gold Council on February 11, the net purchase of gold by the global central bank in 2021 was as high as 463 tons, and as of January, the world's record inflow of funds into gold-backed ETFs reached a new high of 3785 tons, and in January alone, the global gold-backed ETFs under the leadership of North American funds had a net inflow of 46.3 tons, the highest level since May last year.
It is worth noting that more than 60% of the total inflows of Asian gold-backed ETFs come from China, and what is more surprising to investors is that according to The World Gold Council and customs data, in 2021, China imported 818 tons of gold, significantly higher than the import volume of about 120 tons in 2020, since April 2020, China has issued a large number of gold import quotas, analysts expect that gold demand in the Chinese market will rise again after the Lunar New Year, most of China's gold imports come from Switzerland, In places like Australia and South Africa, gold demand from china and India accounts for about 40% of the global market.
Not only that, but new data from another channel also shows that according to an updated industry report released by a Swiss precious metals research institute cited by the US financial website Zerohedge on February 14, a recent batch of about 160 tons of gold arrived in the Chinese market from Europe and the United States in January.
A late-night freighter was piled high with boxes of gold
The above data statistics show that together with the 818 tons of gold imported by China in 2021, a total of 978 tons of gold have arrived in Batches from the beginning of 2021 to January. But the matter did not end here, and what is even more surprising is that gold sales in the US market are also very hot, and Americans are snapping up and hoarding gold coins, and sales are reaching new highs.
According to data released by the World Gold Council on February 11, the sales volume of the US Eagle Gold Coin was 181,500 ounces in January, ranking third in the total sales volume in January of the calendar year, which also continued the strong performance of 1.2 million ounces of sales in 2021 (the highest annual sales since 2009). In 2021, silver coin sales represented by the US market also hit a record high, with silver coin sales of 147.7 million ounces.
According to Metals Focus, although the consumer confidence index released by the United States on February 10 is the lowest in eleven years, the US gold and silver coin market will remain strong, and gold coin sales are expected to exceed 140 tons in 2022, which is expected to hit a new high in more than 10 years. But what is even more surprising is that according to a proposal (HB2123) submitted by the US state of Kansas on February 1, the state will recognize gold and silver as legal tender and compare them with the US dollar. For example, U.S. data firm Palantir said it bought $50 million in gold bars to deal with risk events and high inflation, and invited its customers to also use gold coins to buy their services, which is the most vivid example of CNBC's February 10 report for us, and at this juncture, there is another unexpected thing.
According to an updated industry report published by crispin Odey, the world's top hedge fund manager, in an updated february 7 update, the US Treasury may soon confiscate gold, ban private holding of gold, and only allow holding gold coins issued by the US Treasury, and may try to monetize gold in the future, because although the Fed has been downplaying inflation expectations, the US may lose control of inflation. This also explains why American consumers and some elites have bought a large number of gold and silver coins in recent times, which reflects that the United States is now monetizing trillions of US dollars, which also means that American individuals no longer have private rights to gold. (End)