According to the latest international capital flow report (TIC) released by the U.S. Treasury Department on December 16, the US bond holdings will have a two-month lag practice. In October, the amount of US bonds held by global official institutions fell to its lowest level since May 2021 to $7.185 trillion, and at the same time, overseas funds also sold a record $285.9 billion in US stock . Among the 38 major overseas holders of US bonds released in the
TIC report, 21 official institutions have net selling of US bonds. For example, among the top ten overseas US bond holders, only Belgium and French increase their holdings , while other creditors all reduce their holdings, including Japan's largest selling volume, followed by the UK and China. The
report shows that Japan, the largest overseas US bond buyer at the cornerstone level of US bonds, continued to sell 42 billion US bonds significantly in October, and it was the fourth consecutive month to reduce its holdings. During this period, Japan sold 158.1 billion US bonds (42 billion, 79.6 billion, 34.5 billion and 2 billion respectively), and sold the most among all overseas US bond creditors, in order to deter the US dollar. 's holdings fell to its lowest level in three years to $1.078 trillion (see the figure below for details of the specific data).
At the same time, China also sold 24 billion US bonds in October after a sharp sell of 38.2 billion US bonds in September, and maintained a sharp sell-off for the second consecutive month. This is also a continuous sell-off after a slight increase in holdings in July and August, which has reduced its holdings of position to US bonds to US $909.6 billion, continuing to set a new low in twelve years. From December last year to June this year, China sold 113 billion US bonds for seven consecutive months (see the figure below for details). China is still the second largest overseas US bond creditor, and the core logic behind this is actually very simple.
analysis shows that as the dot chart released by the Federal Reserve on December 16 showed that the peak of the benchmark interest rate of rose to 5.1% beyond expectations (previously 4.6%), it has enhanced the confidence of global official institutions to stay away from US bonds. Although the Federal Reserve has slowed down the rate hike of in December, it has clearly stated that "it is slower and more". The long-term higher rate hike of is expected to be expected to be " is still the biggest tail risk faced by the Treasury market. Federal Reserve Chairman Powell hinted at the interest rate meeting in December that "interest rates will rise to higher levels if unexpected situations occur", which shows that by the second quarter of 2023, the yield of in US bond may rise back to the 5% range.
and even, former US Treasury Secretary Summers believes that the Fed needs to raise interest rates to 6% or higher to control deep-rooted inflation, which all indicate that the U.S. Treasury market will experience more turmoil. For example, in the 1980s, then-Federal Chairman Paul Volker raised interest rates to 20% before taming the beast with inflation reaching more than 14% (please refer to the figure below). This also means that the Federal Reserve, which is in order to restore credibility, may have to continue to increase interest rate expectations.
This shows that in the next few months, there is an expectation that US bonds will continue to be sold significantly, trading liquidity shrinks, and volatility increases. Here we should explain that bond yields are inversely proportional to prices, and rising yields means that the selling volume of US bonds is greater than the purchase volume. Therefore, we will also see , the global central bank, , which will continue to sell US bonds in the next two quarters, and the latest data is feedback on this trend.
For example, according to data released by the Federal Reserve on December 15, in the four weeks ending December 11, global central banks sold a total of 85.3 billion US dollars in bonds, and the second largest monthly selling scale since March 2020.
According to data released by Liber, a research institution for International Fund, on December 16, in the past week, fund , including U.S. high-yield bonds, U.S. municipal bonds and U.S. municipal bonds, suffered a total outflow of up to $5.6 billion, which also caused the US Treasury Department to set a record-breaking transaction data at the $26 billion 5-year U.S. bond auction held by the U.S. Treasury on December 16.
For example, according to statistics from the Japanese Ministry of Finance, since October, the Bank of Japan has urgently intervened in the exchange rate support for the yen, and it is estimated that it has sold at least 130 billion US bonds. Analysis shows that the Federal Reserve has not yet determined to turn from its hawkish stance, which shows that the yen decline is still repeated. Therefore, once Japan loses control of the treasury yield curve upper limit and the yen, coupled with the Japanese trade deficit hitting a new low and the spread of Japan-US interest rate widening, Japan is likely to sell US$900 billion US bonds significantly to deter the US dollar.
Immediately afterwards, the US rating agency Fitch also stated in a report released on December 16 that the U.S. federal government, which now has cracks, means that there may be disputes over issues such as budget and debt ceiling , which eventually led to the U.S. federal government closing again. However, at present, Congress still reached an agreement on a $1.5 trillion appropriation bill, which also caused U.S. Treasury Secretary Yellen to once again bluntly send the market a pessimistic signal that "the transactions in the U.S. Treasury bond market may collapse."
This shows that the US Treasury, which serves as the anchor of global asset prices, has become a risky asset volatility prolongs compared to gold, a traditional safe-haven asset. As the figure below shows, over the past two decades, as global central banks have gone from the largest buyer of US Treasury bonds to the largest net seller, as global central banks' U.S. bond holdings have dropped, gold reserves have soared to an all-time high.
As of October this year, the official gold reserves of global central banks reached 36,800 tons. In the first 10 months of this year, global central banks purchased nearly 704 tons of gold, of which 399 tons of gold were purchased in the third quarter, twice that of the second quarter, setting a record for the fastest purchase of gold since the year when gold was decoupled from the US dollar.
The data below provided by World Gold Association and IMF also shows that since 2021, as the international reserve asset of global central banks has fallen from a temporary high point and has seen a significant downward speed in recent months, while gold reserves are generally in a strong upward area, and de-dollarization has accelerated. It is obvious that gold, as a key component of international reserve , is reappearing its financial and monetary attributes. At this critical moment, something unexpected happened to the market.
According to data released by the State Administration of Foreign Exchange on December 7, China also broke its silence and sent a new signal to increase its holdings of gold reserves. As of the end of November, gold reserves increased by 32 tons to 1,980 tons. This is the first time that China has disclosed that the increase in gold reserves has increased since September 2019, which is beyond the expectations of the global market.
In addition, according to the latest data summary cited by the World Gold Association on December 2, China's gold imports in September remained at a high level, importing 152 tons, while in August and July were 182 tons and 178 tons respectively, setting the highest quarterly imports in the same period since 2017. This also made China's cumulative gold imports reach 902 tons from January to September 2022, significantly higher than the average level in the past three years.
This further shows that in just 9 months this year, it has exceeded the 821 tons of gold imports in 2021, which surprised the market even more. This also means that from January to September this year, statistics from the public data disclosed by the World Gold Association channels alone show that at least 1,723 tons of gold have arrived in China in batches.
The fact that global central banks accelerate the sale of US bonds to replace gold shows that it is only a matter of time before US Treasury bonds lose the function of safe-haven assets, because the US dollar is built on a huge debt house of cards, and most of the US dollar is anchored to the issuance of US bonds without gold support. It is obvious that the current US bond market is insolvent, and only the overvalued US dollar index is struggling to support this. Federal Reserve Chairman Powell has long known this, and the change in attitudes towards US bonds as the cornerstone level of US bonds may be the barometer of global investors' turnover.
In this regard, senior Wall Street predictor Peter Schiff said again on December 16 that although the Fed's slowdown in interest rate hikes has given some support to US bonds, no matter what the Fed does now, it will cause the US Treasury market to collapse. This is just a matter of time. As US bonds continue to be sold by global official institutions, coupled with US economic expectations of rising US credit market risks after the recession expectations have increased, Wall Street is waiting for the Fed to surrender and turn. The question is how long they can persist!
"Doctor Doomsday"Rubini also said on December 14 that the US financial market has re-enacted the financial crisis of 2008. The United States will suffer from the "severe recession, serious debt and the financial crisis ". Immediately afterwards, the Wall Street financial tycoon who is known as the visionary Wall Street financial tycoon, an American billionaire investor, Jim Rogers also said in an interview with the media: Now "US debt is everywhere, and printing money is everywhere. The United States is the world's largest debt country, and in the end the US debt economy will have to pay the price." (End)
