China continues to sell U.S. bonds, who is the biggest taker?

After China continued to sell off U.S. bonds, the biggest takers were U.S. households and individual investors. These households and individuals bought more than 70% of the newly issued U.S. bonds, becoming the largest "receiver" of U.S. bonds. Although the Fed, the largest holder, is also reducing its holdings of US Treasuries, it has not reduced its holdings to the extent of the combined reductions of China and Japan, and the Fed's holdings have fallen to $4.93 trillion. In addition, it has been reported that at its peak, the Fed held close to $9 trillion in U.S. bonds, suggesting that in some periods, the Fed is indeed the biggest "taker" behind it. However, according to the latest data and reports, ordinary households and institutional investors in the United States have become the main receivers, accounting for 70%.

In summary, while the Fed may be seen as the biggest taker in some periods, in the current situation, U.S. households and individual investors are the main takers after China's continued sell-off of U.S. bonds.

What are the specific data and timelines for China and Japan to reduce their holdings of U.S. Treasuries?

The specific data and timeline of China and Japan's reduction of US Treasury bonds are as follows:

For China, data for the whole of 2022 showed that China reduced its holdings of U.S. Treasuries by $173.2 billion. From the beginning to the end of 2022, China's holdings of U.S. bonds fell from $1.0601 trillion to $867.1 billion. In some months, such as May 2022, China's holdings of U.S. Treasuries fell sharply by $22.2 billion, bringing its total holdings to $846.7 billion from $868.9 billion in the previous month. In January 2023, China continued to reduce its holdings of U.S. Treasuries, reducing its holdings by $7.8 billion to $870 billion that month. By December 2023, China's holdings of U.S. bonds fell further to $769.6 billion, meaning that China has sold U.S. bonds for seven consecutive months.

For Japan, data for the full year of 2022 showed that Japan reduced its holdings of U.S. Treasuries by $224.5 billion. From the beginning to the end of 2022, Japan's holdings of U.S. bonds fell from $1.3031 trillion to $1.0763 trillion. In some months, such as August 2022, Japan's holdings of U.S. Treasury bonds fell sharply to $1.1998 trillion from $1.2343 trillion in the previous month, a decrease of $34.5 billion month-on-month. By September 2023, Japan reduced its holdings of U.S. Treasuries by $28.5 billion, bringing its holdings to $1,087.7 billion.

In addition, by January 2024, Japan increased its holdings of US Treasuries by $14.9 billion, bringing its holdings to $1,153.1 billion.

China and Japan continued to reduce their holdings of U.S. Treasuries between 2022 and 2024, with China reducing its holdings by $173.2 billion in 2022 and Japan reducing its holdings by $224.5 billion over the same period. By January 2024, Japan will begin to increase its holdings of US Treasuries.

What are the motivations and strategies for ordinary U.S. households and individual investors to buy U.S. bonds?

The motivations and strategies of ordinary U.S. households and individual investors to purchase U.S. bonds mainly include the following:

1. Access to coupon yields: Individual investors can purchase U.S. Treasuries, especially savings bonds, directly through the Treasury Direct's website to earn coupon yields.

2.3. Taking advantage of changes in interest rate policy: Investors can choose to buy or hold U.S. bonds after the Fed cuts interest rates and before the rate hike by observing changes in the Fed's monetary policy, as well as selling U.S. bonds when interest rates are raised.

1. Fixed income portion of the portfolio: Financial experts recommend that the average individual investor should have a certain percentage of U.S. Treasury bonds (e.g., 30%) in their portfolio to ensure the safety and stability of the portfolio.
2. Dealing with a low interest rate environment: Against the backdrop of a global economic slowdown and central bank interest rate cuts, U.S. Treasuries have become a relatively safe investment option.
3. High yield with options: By investing in U.S. Treasury options, you can earn a higher yield than traditional bond investments under certain conditions.
4. Adopt a "bond ladder strategy": that is, the U.S. bonds invested are evenly distributed over a period of months or years, and reinvested after each maturity to diversify risk and seek to maximize returns.
5. Take advantage of the interest rate cut cycle: During the interest rate cut cycle, U.S. Treasury funds can not only benefit from the coupon income brought by high-coupon U.S. bonds, but also profit from the rise in bond prices. In addition, fund managers can hedge exchange losses by locking foreign exchange to further optimize returns.
6. Strategies for dealing with market volatility: While foreign authorities may sell Treasuries, foreign retail investors may be buying Treasuries at record levels to hedge against inflation, stock market turmoil, and more.
7. Invest according to the maturity of the U.S. bond: Generally, the longer the maturity, the higher the yield of the U.S. bond, but there will also be a situation where the yield will be inverted. Investors can choose the right type of U.S. bonds to invest in according to their risk appetite and investment goals.

The motivations and strategies of ordinary U.S. households and individual investors to buy U.S. bonds are diverse, ranging from the pursuit of stable coupon yields to the use of market changes and interest rate policy adjustments to obtain higher investment returns. At the same time, through reasonable asset allocation and investment strategies, investment risks can be reduced to a certain extent.

Why did the Fed reduce its holdings of U.S. Treasuries and what is its impact on the market?

The main reasons for the Fed's reduction of U.S. bonds are as follows: First, high inflation in the U.S. may lead the Fed to accelerate the pace of interest rate hikes, which makes U.S. Treasury yields rise (bond prices fall). Second, high global inflation has led to a decline in the real yield (nominal yield-inflation rate) of US Treasuries, making US bonds less attractive. In addition, the Fed is about to start discussing reducing the size of its balance sheet, and the market is increasingly concerned about the risk of deterioration in liquidity in the US Treasury market. In addition, the U.S. Congressional Budget Office (CBO) estimates that if the U.S. bipartisan debt ceiling cannot be raised in time, the U.S. Treasury's extraordinary measures will stop in July-September this year, leading to a default on U.S. debt.

In terms of the impact on the market, the reduction of US bonds has the greatest impact on the United States itself, because the main holders of US bonds are Americans, and the reduction of US bonds also means that the international community is worried about the credibility and economic growth of the United States, which is the biggest crisis in the United States. At the same time, the spillover impact of the Fed's tapering of bond purchases may have a certain impact on domestic financial markets and enterprises through intermediaries such as changes in the risk-free interest rate, changes in the US dollar exchange rate, and fluctuations in international commodity prices. For example, after Taper lands, the market's focus will turn to interest rate hikes, and the uncertainty of the prospect of interest rate hikes may lead to increased volatility in US dollar assets, increased risk aversion of international capital, capital withdrawal from emerging markets, seeking safe-haven assets, and RMB assets may become its "safe haven". In addition, if the Fed's forecast is accurate, as the global supply chain is repaired, inflation will fall, and the rise in the price of globally priced commodities such as energy may flatten out, reducing the upward pressure on domestic PPI and slowing down the pace of raw material price increases, which will be beneficial to corporate earnings.

In the context of China's sell-off of U.S. bonds, have other countries or institutions also been involved in this act, and what is their role and impact?

In the context of China's sell-off of U.S. bonds, there are indeed other countries or institutions that are involved in this act. Japan, the United Kingdom and other countries are also reducing their holdings of U.S. bonds, showing that many countries' expectations for the dollar, U.S. bonds and the U.S. economy have changed. For example, Japan has reduced its holdings of U.S. bonds for three consecutive months, and Canada, Luxembourg, Brazil, Ireland and other countries are also reducing their holdings. In addition, Belgium and Luxembourg also sold US bonds in 2022.

The impact of these behaviors is mainly reflected in several aspects. First of all, the reduction of U.S. debt holdings by many countries reflects the changes in the international community's expectations for the dollar, U.S. bonds and the U.S. economy, which may be related to the fact that the U.S. is mired in the inflation vortex and aggressive interest rate hikes are difficult to curb high inflation. Second, China's reduction of holdings may cause other countries to lose confidence in U.S. bonds, creating a vicious circle that will have a huge impact on U.S. financial markets. In addition, China has increased its holdings of gold while reducing its holdings of US bonds, suggesting that China is diversifying its investment risk and reducing its reliance on a single asset class.

However, it is worth noting that despite the sell-off, not all countries have opted to abandon US debt altogether. For example, China began to increase its holdings of U.S. bonds since last November, demonstrating its flexibility in managing its foreign exchange reserves. This shows that in the global financial environment, central banks and investors will make different investment decisions based on their own economic conditions and market expectations in the face of uncertainty.

Other countries or institutions have indeed participated in China's sell-off of U.S. bonds, and their role and impact are reflected in the reduction of U.S. debt holdings to deal with U.S. economic risks, reflect changes in confidence in the U.S. dollar and U.S. bonds, and to some extent affect the sentiment of international financial markets. At the same time, it also shows the complexity and diversity of foreign exchange reserve management and international investment decisions in the context of globalization.

What is the trend of the world's major economies' holdings of U.S. Treasury bonds in recent years?

In recent years, the holdings of U.S. Treasuries by the world's major economies and their trends have shown some key changes. First, Japan, China, and the United Kingdom are the three countries with the most U.S. debt. At the end of February 2024, Japan increased its holdings of U.S. Treasuries by $16.4 billion, bringing its holdings to $1,167.9 billion, continuing to remain the largest overseas holder of U.S. Treasuries. By contrast, China reduced its holdings of U.S. Treasuries by $22.7 billion over the same period, bringing its total holdings to $775 billion, the second consecutive reduction since January 2024.

These changes reflect the different strategies and expectations of different countries for the U.S. Treasury market. Japan, for example, seems to be optimistic about US Treasuries and has chosen to increase its holdings. China's reduction of holdings may reflect concerns about the outlook for the U.S. economy or volatility in the U.S. Treasury market.

In addition, changes in U.S. Treasury yields have also affected the holding strategies of global investors. Since the end of 2023, US Treasury yields have risen again, with the 10-year US Treasury yield continuing to rise from 3.79% on December 27, 2023, and hitting a stage high of 4.18% on January 24, 2024. This rise in yields may attract some investors looking for higher returns, but it also increases market uncertainty and may lead some countries, including China, to choose to reduce their holdings of U.S. Treasuries to avoid risk.

In recent years, the holdings of US Treasury bonds in the world's major economies have shown a certain divergence, with Japan increasing its holdings of US bonds and China choosing to reduce its holdings. These changes reflect different expectations and strategies for responding to changes in the U.S. economy, volatility in the U.S. Treasury market, and yields.