As the Russian-Ukrainian conflict continues to affect global energy markets, coupled with the new two-year low of the US unemployment rate falling to 3.6% announced on April 1, wage growth has accelerated again, so that the Fed is expected to raise interest rates by 50 basis points in May and the expectation of early balance sheet reduction, us Treasuries have suffered a sharp sell-off, bears have squeezed the market, pushed yields higher, and US Treasury yields have exceeded the 2.3% warning level.
On April 2, the 10-year Treasury yield hit its highest two-and-a-half-year high of 2.62%, and reuters monitored data showed that in the eight weeks to March 31, the outflow of US Treasuries of all maturities rose to $109.8 billion, recording the worst monthly performance of US Treasury trading in more than a decade.
Behind this is the theoretical possibility of inverting the interest costs of US Treasury investors, because as the supply of US bonds continues to rise, hot inflation, the depreciation of the purchasing power of the US dollar and the real yield of the ten-year US Treasury, which is anchored by global asset prices, has been in negative territory for a long time, making the Fed, although it has begun to raise interest rates, it is still not enough to push the real yield to positive.
On April 2, the 2-year-10-year Treasury yield curve, which investors regard as an indicator of the recession, inverted for the third time in the last five trading days, with spreads widening to minus 7.85 basis points and finally closing at minus 5.40 basis points. Meanwhile, U.S. 2-year and 30-year Treasury yields have inverted for the first time since 2007, signaling a U.S. recession.
In this regard, the debt king Gross said, "As inflation continues to be at a high level of more than 7%, I am already shorting the US Treasury", and Bill Gross, co-founder of Pacific Investment Management, also said, "Now the US Treasury has become a venture capital, and as interest rates in the interbank lending market rise, the return on US Treasury investment will fall from 10%-20% in recent years to 5%-6%", the data shows, The Us Treasury Index returned negative 2.3 percent overall in 2021, its first decline since 2013 at nominal prices.
Immediately after, Deutsche Bank believes that at present, up to 87% of the actual yields of us treasury products of various maturities, including high-yield junk bonds, are negative, which is also part of the reason why US Treasury investors, including those with national backgrounds, have begun to reduce or slow down the purchase of US Treasuries.
In January, while private investors bought 62.2 billion U.S. Treasuries, only Switzerland, ranked No. 6, and Cayman Islands, which ranked No. 6, among the top ten U.S. Treasury holders, including China, Japan and the United Kingdom, had a small increase in U.S. Treasuries, and as the yield on ten-year Treasuries rose from 1.78 percent at the end of January to 2.6 percent in recent weeks, Expect to see more sell-offs from global central banks in the next two months of reports. Bond yields are inversely proportional to prices, and rising yields represent net sell-offs greater than purchases.
A corner of the U.S. printing house
It is worth noting that the US Treasury report shows that China in January sharply reduced its holdings of US$12.2 billion in December last year, and again sharply reduced its holdings of US$8.6 billion, reducing its holdings to US$1.0601 trillion, and China is still the second largest overseas creditor of US bonds, which is similar to the trend of other global central banks reducing US bonds (for specific data details, please refer to the chart below).
The report shows that in January, the United Kingdom, the third largest overseas holder of US debt, sharply reduced its holdings of US 38.6 billion US bonds, selling more than all overseas US debt holders, while Japan also continued to reduce its US 900 million US bonds slightly in January, and last December it had significantly reduced its holdings by 23 billion, and Japan has been firmly at the top of the list of overseas US debt holders in the last 30 months.
What worries the market even more is that the Fed, the largest purchaser of US Bonds, has also stopped buying US Bonds from March, and even hinted that it will sell US Treasury assets in May and no longer pay for US Bonds, it is in these contexts that some sensible international funds began to transfer from the US asset market in advance to replace non-US assets such as gold and hedge exposure risks (for details, please refer to the chart below), which has become more clear in the market environment where the Russian-Ukrainian conflict continues, and the world has begun to buy physical gold. This shows that gold plays a significant role as a safe haven in times of crisis.
Some traders told BWC Chinese network that since the Russian-Ukrainian conflict they have received a large number of orders to buy gold bars, gold and silver sales have increased by 298%, 30% of customers need gold, and the purchase demand in recent days has been increasing.
The World Gold Council also said in a report published on March 28 that in February, global gold ETF net inflows of 35.3t, in addition, the global central bank in 2021 to increase the gold by 463 tons (an increase of 82% over 2020) on the basis of a net purchase of 13 tons in January, making the global central bank gold reserves reach the highest level in nearly 30 years, the survey report believes that 21% of the global central banks are expected to continue to buy large gold in 2022.
To the surprise of the market, the report data showed that more than 60% of the total inflow of Asian gold-backed ETFs came from the Chinese market in the 14 months to February, while since last year, China's gold bar and coin sales have also reached 721t for the whole year, up 68% year-on-year. What is even more surprising to the market is that according to the US financial website Zerohedge quoted Swiss and Dubai customs data on March 30, with the recovery of China, the world's largest gold consumption market, in the 12 months as of March 15, Switzerland and Dubai's gold exports to the Chinese market grew to the highest level in four years, of which the most recent batch of about 200 tons of gold has arrived in the Chinese market from Europe and the United States in early March (for details, please refer to the figure below).
Analysts expect gold demand in the Chinese market to rise again after March. According to Chinese customs data, China imported a total of 818 tons of gold in 2021, significantly higher than the 128 tons in 2020, which also means that since 2021, at least 1018 tons of gold have arrived in Batches to China. (End)