At present, the international situation is rapidly changing. Previously, many countries were continuously reducing their holdings of U.S. Treasury bonds, but now it is quite different. Currently, more than 30 countries are continuing to purchase U.S. Treasury bonds, including China and Japan.
Even the Federal Reserve is massively selling U.S. Treasury bonds, and U.S. Treasury bonds are about to default. Under these circumstances, are countries around the world buying U.S. Treasury bonds preparing to pay for the United States?
01. Global purchase of U.S. Treasury bonds?
The latest report from the United States points out that March this year has become the month with the highest increase in foreign holdings of U.S. Treasury bonds in nearly two years. In March, China and Japan, the top two foreign creditors, were also in a state of increasing holdings.
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In addition, China ended a seven-month reduction in U.S. Treasury bonds in March and began to increase its holdings. After Japan's holdings fell in February, they began to rebound.
It's not just China and Japan, other countries also increased their holdings of U.S. Treasury bonds in March, with varying amounts.
Overall, the increase in foreign holdings of U.S. Treasury bonds was $200 billion more than in February, which is astonishing.
02. Paying for the United States?
Some people say: China chooses to increase its holdings for the benefits.
They believe that the trade surplus generated by China in trade with the United States is increasing. In other words, China can earn U.S. dollars through the trade surplus and then use these funds to increase its holdings. This is a means of asset risk aversion and appreciation.I do not agree with this viewpoint.
Firstly, China's foreign exchange in US dollars is not necessarily increasing; it might actually be decreasing. Why do I say this?
Although China's foreign trade has been increasing annually, the trade growth rate with the United States is relatively slow, and even negative growth has occurred this year.
Moreover, China's foreign trade used to be largely settled in US dollars, but now it has shifted to the use of the renminbi. Therefore, there is a significant trade surplus, but it does not necessarily mean there are a lot of US dollars; it could be in renminbi or other currencies.
Secondly, it is not certain that China has purchased US Treasury bonds, because the continuous rise in the price of US Treasury bonds in March has led to an increase in China's holdings, which does not necessarily mean that China has bought government bonds.
Although the United States is very nervous about the US Treasury crisis, we have noticed that the Federal Reserve has sold at least $550 billion worth of government bonds in the past year's balance sheet reduction.
This is obviously a very irresponsible act. Under these circumstances, can we still expect other countries to buy US Treasury bonds to pay for the United States?
Obviously, it is impossible.
03, What is the future of US Treasury bonds?
Let's imagine how the US Treasury bond issue will evolve in the future?The current U.S. debt is facing an upper limit crisis, and it is estimated that the limit will eventually be raised.
The U.S. then begins to print a large amount of U.S. dollars. Looking at the stock market, when a large amount of money flows into the market, the U.S. stock market becomes the biggest beneficiary. In fact, this is all caused by the large amount of money printing, and the dividends involved need not be elaborated.
Furthermore, the act of printing a large amount of money will lead to inflation. In response, the U.S. may raise interest rates, causing U.S. debt prices to fall again.
At the same time, the increase in the supply of U.S. dollars also causes its exchange rate to continue to depreciate, which is a good thing for the Chinese yuan.
Looking at the global situation, the settlement currency of various countries has long been the U.S. dollar, and the exchange rate is the key to the stability of all assets. However, it now appears that the long-term trend of the U.S. dollar is still weak and cannot be reversed or avoided.
In this environment, the Chinese yuan also has hope to usher in a good momentum in the future.