China reduced its holdings of 22.7 billion U.S. bonds, while Japan, the United Kingdom, Canada, and France increased their holdings, and the largest receiver surfaced

Last week, Yellen, a 77-year-old American lady, visited China again and stayed for six days from Guangzhou to eat, drink and have fun. However, she did not simply come for tourism, but negotiated for the benefit of the United States, one of which was to let us continue to buy US bonds.

Since the pandemic, the pace of U.S. bond issuance has soared, with $1 trillion being issued almost every 100 days, shocking the world. As of March 28, 2024, the size of the U.S. debt is close to $34.6 trillion and is expected to exceed $35 trillion in the first half of the year.

The United States is constantly issuing bonds, who will take over? Of course, look for the richest one, who is the richest? Judging from foreign exchange reserves, China is the richest, with more than $3 trillion and has been the richest for more than 10 consecutive years.

However, in the past two years, the mainland has basically reduced its holdings of U.S. bonds, and the occasional increase in holdings is also passive. On April 18, the U.S. Department of the Treasury released its International Capital Flows Report (TIC) for February 2024.

In February this year, four of the top 10 overseas holders of U.S. bonds reduced their holdings, namely China, Ireland, the Cayman Islands, and Switzerland, with a total of $67.2 billion in holdings. 6 overweights, namely Japan, the United Kingdom, Luxembourg, Canada, Belgium, and France, increased their holdings by a total of $84.8 billion, which means that the top 10 holders increased their holdings by a net increase of $17.6 billion.

It was not China that reduced its holdings the most, but Switzerland, which reduced its holdings by $25.6 billion in February, and its holdings fell to $256.6 billion. China reduced its holdings by $22.7 billion, bringing its holdings to $775 billion. It has been reduced for two consecutive months, and in January, it reduced its holdings by $18.6 billion.

Since April 2022, the mainland's holdings of U.S. bonds have been below $1 trillion. From August 2022 to October 2023, there was only one increase in holdings in the middle, and all other times were reduced in US bonds. In November and December last year, it increased its holdings of U.S. bonds for two consecutive months.

However, it is common sense to popularize here that reducing the holdings of U.S. bonds includes both active and passive reductions. In February, for example, we actually actively sold $13.15 billion of medium- and long-term Treasury bonds and $750 million of short-term Treasury bonds, totaling $13.9 billion. The other $8.8 billion is a passive reduction, which you can also understand as a shrinkage of assets.

U.S. bonds are also a financial product, and their yield is inversely proportional to their price, with the higher the yield, the lower the price. In February, the yield on the 10-year Treasury note rose from 3.8% to 4.35%, which caused the price of US Treasuries to fall quite a bit, and the value of our holdings of US Treasuries naturally fell. It's the same as stocks, you don't sell a penny, but because the stock price falls, your investment has to shrink.

As a result, although we increased our holdings of $34.3 billion in US bonds in December last year, we actually only bought a small amount of US bonds, and the rest was due to the increase in US bond prices.

In the past two years, the mainland has been optimizing the structure of foreign exchange assets and implementing diversified asset allocation. By March this year, the mainland had been net buyers of gold reserves for 17 consecutive months, and the proportion of gold in foreign exchange reserves had increased to 5%. However, the share of gold is still much lower than in the West, and I expect us to continue to increase our gold reserves. Gold prices have gone crazy in recent times.

According to official sources, after Yellen left, US Secretary of State Blinken came again. Last year, the two visited China one after the other, and this year it is the same. But to be honest, begging others to buy government bonds, while constantly increasing sanctions, this kind of slapstick will only backfire, and we will no longer be able to buy US bonds on a large scale as we did after the 2008 financial crisis.

We sold US bonds, but America's allies were very active. As the largest overseas holder, Japan increased its holdings by $16.4 billion in February, with a holding size of $1,167.9 billion. The United Kingdom increased its holdings by 9.6 billion US dollars, and the scale of its holdings rose to 700.8 billion US dollars, which is not far from the scale of China's holdings.

Of course, Belgium saw the largest increase in holdings, reaching $26.9 billion. In addition, Canada increased its holdings by $14 billion, France increased its holdings by $15.4 billion, South Korea increased its holdings by $600 million, and Germany increased its holdings by $900 million.

As of February this year, the balance of U.S. Treasury bonds held by foreign investors was $7,965.4 billion, an increase of only $20 billion.

For US bonds, which expand by $1 or 2 trillion a year, an increase of only $20 billion a month is far from enough, so who will take over the US bonds? In fact, the biggest takeover of US bonds is the Federal Reserve.

Although the Fed is a private institution, it has a close relationship with the U.S. government. The Fed's chairman, vice chair, and seven executive members are also subject to direct nomination by the president before they are submitted to Congress for approval.

In fact, the Federal Reserve has been standing up for US Treasuries, and it has gone down in person, buying them in large quantities. After three rounds of QE and one round of reversal operations during the financial crisis and the new crown epidemic, the Fed's holdings of U.S. bonds were close to 6 trillion. However, it is now down to less than $5 trillion.

It can be said that without the endorsement of the Federal Reserve, U.S. bonds are likely to be unsold, issued at a discount, and even abandoned by the market.

U.S. Treasuries will continue to expand and more people will need to take over, but the Fed lost a record $114.3 billion last year. For the United States, it is better to go out and find a pick-up, especially China. The more U.S. debt we hold, the more leverage the U.S. has. So, that's why the top U.S. cabinet members visit China frequently. But this is no longer the case, and we don't borrow money easily.