According to the latest international capital flow report released by the US Treasury Department on December 16, in October, China's holdings of US bonds decreased by US$24 billion again, and it was a two-month reduction in holdings (38.2 billion in September), ending the two consecutive months of buying US bonds before August. The total amount of holdings of dropped to US$909.6 billion, setting a new low in twelve years.
Currently China is the second largest overseas US debt creditor, accounting for about 12.7% of the total US debt held by official institutions around the world. In October, the US debt held by official institutions around the world fell to its lowest level since May 2021 to US$7.185 trillion for the second consecutive month.
In addition, the latest report data also shows that in addition to China that month, 18 countries including Japan, the United Kingdom, Luxembourg , Switzerland , Ireland , Brazil, Singapore, South Korea, Israel, Vietnam also sold US bonds to varying degrees. Among them, the UK sold 24.8 billion US bonds, the second largest sell-off volume after Japan. At the same time, foreign investors once again netted to sell a record 285.9 billion U.S. securities assets, which is also the largest net selling since August 2009.
It is worth mentioning that Japan's holdings of US Treasury bonds in October fell by another 42 billion US dollars to 1.078 trillion US dollars. This is the fourth consecutive month that Japan has reduced its holdings of treasury bonds. In the previous three months, Japan sold a total of 116.1 billion US Treasury bonds, the largest selling force among all overseas US Treasury creditors.
It is worth noting that some analysts believe that as the peak of Feder benchmark interest rate climbed to 5.1% beyond expectations, it has enhanced the possibility of Japan continuing to sell US bonds, to continue to defend the Japanese Treasury bond yield curve and the yen. If the volatility of US bonds yield intensifies, as the risk of US economic recession increases, Japan also has the possibility of clearing US bonds.
On December 16, the US dollar rose to a two-week high against the yen again. rose 1.6% to 137.665 at the end of the trading session. Since September this year, the Bank of Japan has launched a Pearl Harbor-style financial attack on US finance in two batches, and has adopted no official announcements and late-night intervention, aiming to keep the US financial market alert at any time to the possibility of foreign exchange intervention and increase its deterrent force against the US dollar.
According to the speech by relevant officials of the Japanese Ministry of Finance and the Bank of Japan in December 16, "If the current exchange rate level continues to fluctuate, no action will be ruled out."
According to the latest data released by the Japanese Ministry of Finance on December 2, large institutional investors, including Japan Bank and pension funds, have netted selling of US bonds for the ninth consecutive month, with an amount of up to US$270 billion, setting the longest continuous selling record since a record in 2005. At the same time, in addition to selling US bonds heavily, Japan is also in exchange for gold reserves and non-US dollar monetary assets.
analysis shows that as the Federal Reserve continues to make "eagle endless" remarks that stimulate the intensification of US debt volatility, Japan will continue to increase its RMB reserves, allowing it to accumulate more non-US assets in foreign reserves to reduce the risk of exposure to US debt and reduce the risk of bilateral transaction costs and US dollar exchange rate fluctuations.
For example, Japan's largest pension fund is focusing on more alternative assets after selling record U.S. bonds, while a large Japanese pension insurance company said, "Since May this year, we are selling U.S. bonds and investing in RMB Treasury bonds."
It is worth mentioning that the 10-year U.S. bond real yield (nominal yield adjusted for inflation) as the anchor of global asset prices has continued to remain in the negative range since March last year. Even the yields of most corporate bonds with high return value are far lower than the inflation value, which means that U.S. bond investors have to bear more yield risks for this.
As the Bank of America report pointed out, as the deep-rooted high inflation in the United States will remain longer and deeper, this will cause the real interest rate of US bonds to fall into the negative area. In other words, theoretically, this also means that all overseas US bond holders including China, Japan, the United Kingdom, Saudi , Germany, Australia, etc. may have to pay interest to the US Treasury for holding US bonds, which is equivalent to paying to the United States in disguise, which was unimaginable in the past.
So, from this perspective alone, when the smart global central bank really needs to solve the rising debt and inflation risks of the United States, the dollar reset in the global money market is expected to occur. Because, the US monetary policy is aimed at its own economy without considering the spillover effect , it is expected to overdraw the credit of US dollars and US assets, and there is no free lunch in the world. (End)
