Reducing holdings of U.S. bonds, U.S. hysteria

In the early morning of April 18, the U.S. Treasury Department released TIC data on U.S. bonds held by various countries in February, showing that Japan, France, and the United Kingdom increased their holdings of U.S. bonds by $16.4 billion, $15.4 billion, and $9.6 billion respectively in February.

Japan's holdings of U.S. Treasury bonds reached $1.1679 trillion, the highest since August 2022, and it remains the largest holder of U.S. debt overseas.

In February, China's holdings of U.S. bonds fell by $22.7 billion, and the size of its holdings of U.S. bonds fell to $775 billion, the lowest since 2009.

The country that reduced its holdings of U.S. debt the most in February was Switzerland, which reduced its holdings by $26.5 billion.

I have also analyzed before that the fluctuation of the data on US bonds held by various countries is affected by three factors:

1. The impact of U.S. Treasury price fluctuations, TIC data is reported by estimates, and its Treits and Notes are estimated by adopting the market value of the latest TIC SLT report, and then using monthly transaction data to forecast for one month. Treasury bills and vouchers are included at face value.

2. Spontaneous market operation behavior of financial institutions and private investors.

3. The operation behavior of central banks.

Because the data on the holdings of U.S. bonds by countries released by the TIC data includes the data held by private investors in addition to the holdings of central banks and private investors, TIC calculates the data on the holding of U.S. bonds based on statistical settlement channels, and cannot track who holds these U.S. bonds.

Therefore, the fluctuation data of U.S. bonds in various countries every month is partly affected by the operations of central banks, but also includes the market volatility of institutional and private investors.

In addition, judging from the steady decline in our holdings of U.S. bonds in the past two years, we have reduced our holdings of U.S. bonds, mainly through non-renewal at maturity, rather than actively selling.

This is mainly due to the fact that the current Fed is raising interest rates aggressively, resulting in the stock of bonds because of the low interest rate of the original bonds, if they sell halfway, they will turn the floating loss into a real loss because of the bond price difference.

If you do not renew it at maturity, you will not bear the floating loss, and you can still get back the principal and interest.

In addition, there are always people who distort that we are reducing our holdings of U.S. bonds in order to stabilize the exchange rate.

But in fact, our current foreign exchange reserves are 3.24 trillion US dollars, and we hold US bonds of 775 billion US dollars, accounting for only 24% of foreign exchange reserves.

In this case, we need to stabilize the exchange rate, and we don't need to sell US bonds, because we have a lot of liquidity in hand.

In comparison, Japan's foreign exchange reserves are only 1.29 trillion US dollars, and its holdings of US bonds are 1.1679 trillion US dollars, accounting for 90.5% of foreign exchange reserves;

Therefore, a country like Japan, where most of its foreign exchange reserves are used to buy U.S. bonds, will be forced to sell U.S. bonds because of the sharp depreciation of the exchange rate and because of the lack of liquidity in hand to save the foreign exchange market.

Our situation is completely different from that of Japan, and we cannot simply confuse it.

In addition, although the size of our holdings of U.S. bonds is partly affected by bond price fluctuations, it cannot be attributed alone.

For example, since January this year, there has been a rebound in US Treasury yields and a wave of declines in bond prices.

In this case, Japan has increased its holdings of U.S. bonds for five consecutive months, and it is the eighth increase in the last nine months, that is, in the last nine months, Japan has only reduced its holdings of U.S. bonds for one month.

This is contrary to the long-term downward trend in US Treasury prices over the past year.

Originally, 90% of Japan's foreign exchange reserves have now been used to buy U.S. bonds, and when the yen exchange rate has depreciated all the way to 154, the Bank of Japan not only did not sell U.S. bonds to save the foreign exchange market, but also used the few precious foreign exchange reserves left to continue to increase its holdings of U.S. bonds.

Compared to Japan, we clearly do not want to increase our holdings of U.S. bonds on a large scale.

In addition to non-renewal at maturity, the overall size of our holdings of U.S. bonds is mainly affected by bond price fluctuations.

As Treasury yields continued to rise in March and April, bond prices continued to fall, and it is expected that our holdings of Treasury bonds will continue to decline in March and April.

But I still have to take a precautionary shot here, at some point in the future, once the Federal Reserve begins to cut interest rates sharply and expand its balance sheet, then the yield of US bonds will fall sharply, and the price of US bonds will rebound sharply.

At that time, there will definitely be many people who will shout that they have agreed, surrendered, and are going to take over as soon as they see the rise in our holdings of U.S. bonds, and so on.

But in fact, fluctuations within $50 billion in a single month can basically be regarded as normal market fluctuations.

With the current scale of U.S. debt exceeding 34 trillion US dollars, the increase in holdings in a single month has not exceeded 100 billion US dollars, and it is simply not possible to start the so-called small countries that take over.

At least it has to continue to increase its holdings significantly for several months, such as more than $500 billion in half a year, which is called taking over.

But obviously, we can't do that.

At present, the hole in the US debt is too big to be solved by increasing our holdings by increasing our holdings by hundreds of billions of dollars.

After the subprime mortgage crisis erupted in 2008, we increased our holdings by about $600 billion in three years, but the size of the US debt was only $9 trillion at that time.

Now that the U.S. debt is $34 trillion, we have to increase our holdings by more than $2 trillion to achieve the effect of adding $600 billion during the subprime mortgage crisis in 2008.

It's not something we can do anymore, and we don't have that much money.

Therefore, we will not increase our holdings of U.S. bonds, and we will not be able to take over U.S. bonds.

The reason why Yellen still has to come to the door every once in a while to sell U.S. bonds is nothing more than to uphold the idea of delaying, even if we only buy hundreds of billions of dollars, it can also play a leading role, at least to show the world a gesture, that is, we are still willing to endorse the credit of U.S. bonds, then Yellen will promote U.S. bonds with other countries, the effect will be much better.

But now that the United States has such a bad relationship with us, it is impossible for us to increase our holdings of US bonds on such a large scale.

If we increase our holdings of U.S. bonds, every penny we lend to the United States may become a bullet to us in the future.

It's not just about investment.

The dollars in our hands are not unspent, and we do not have to buy US bonds, whether it is to invest in countries along the Belt and Road, or to buy mines and resources, it is better than buying US bonds.

After Yellen's recent visit to China, the United States has become hysterical again.

On April 17, the Office of the U.S. Trade Representative (USTR) announced the launch of a Section 301 investigation into China's maritime, logistics and shipbuilding industries.

On the same day, Biden called for a significant increase in U.S. import tariffs on Chinese steel and aluminum products.

But in fact, very little steel and aluminum imported by the United States are imported from us.

It's all about Biden's show for the election.

I have also analyzed before that in this year's U.S. election, the more Biden falls behind in the election, the more he will show a tough stance towards us and compete with Trump.

Therefore, there is no need to expect that the United States will moderate its attitude towards us in the year of the election.

Judging from the recent hysterical reaction of the United States, it is clear that Yellen returned empty-handed, and the more the United States becomes angry, the more relieved I become, which at least shows that we have not made any concessions to the United States.

The more angry the enemy is, the more we are doing the right thing.

Next, Blinken is going to visit China again, but it is estimated that he will come over to exchange views and express their concerns to each other.

In fact, at this stage, when the two sides meet, they are just testing each other, whether the other party can hold on, if the other party has not compromised, each will continue to increase the number of moves when they go back, until one party can not hold on, there will be the possibility of real talks.

In this year's election year, it is obviously unlikely that we will discuss anything too specific with the current administration when the next US administration is still full of uncertainties.

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