The U.S. Treasury market has been in a state of flux recently, with central banks and large investors reducing their holdings of U.S. debt, while the U.S. public has unexpectedly become the main force behind the takeover. Behind this dramatic shift, what reasons and risks are hidden? First, let’s take a look at the changes in the U.S. debt market. In recent years, the size of the U.S. national debt has continued to swell, has exceeded the 33 trillion U.S. dollars mark, far exceeding its total GDP. Such a scale of debt has worried global investors. At the same time, U.S. debt interest rates are rising, and the 10-year U.S. bond yield has exceeded 5 . High interest rates mean that the United States needs to pay huge amounts of interest every year, which undoubtedly increases the risk of debt default.
The U.S. Treasury market has been in a state of flux recently, with central banks and large investors reducing their holdings of U.S. debt, while the U.S. public has accidentally become the main force behind the takeover. Behind this dramatic shift, what are the hidden reasons and risks?
First, let’s take a look at the changes in the U.S. debt market. In recent years, the size of the U.S. national debt continues to swell, has exceeded the 33 trillion dollar mark, far exceeding its total GDP. Such a scale of debt has worried global investors. At the same time, U.S. debt interest rates are rising, and the 10-year U.S. bond yield has exceeded 5 . High interest rates mean that the United States needs to pay huge amounts of interest every year, which undoubtedly increases the risk of debt default.
In this context, central banks and large investors have begun to reduce their holdings of U.S. debt. China used to be one of the largest holders of U.S. debt, but it has also been gradually reducing its holdings in recent years. From 2020 to September 2023, the amount of U.S. debt held by China has almost halved to $778.1 billion. In addition to China, countries such as Japan Britain are also reducing their holdings of U.S. debt, and even the Federal Reserve itself is selling Treasuries.
So, so many U.S. bonds were reduced, who will take over? The answer is surprising to many people, and that is the general public of the United States. From 2022 to the first half of 2023, the number of U.S. debt holdings reduced up to 2 15 trillion dollars, and U.S. individual investors, including hedge funds and the general public, a total of 1 7 trillion U.S. dollars of U.S. debt, accounting for the total amount of holdings reduced to 75 .
Why did the American public become the receiver of US debt? The reason lies mainly in the high yield of US bonds. In the past, the interest rate of US bonds was close to zero, which was not very attractive to ordinary investors. But now, as interest rates rise, the yield on U.S. bonds has been as high as 4 or more. For many U.S. people, this is simply a sure-fire way to make money. Compared with high-risk investments such as speculating in stocks and buying real estate, U.S. bonds seem both stable and attractive.
However, the U.S. public to take over the U.S. debt is really a wise choice? On the surface, high interest rates do attract a lot of people into the game. But when you think about it in depth, you will realize that things are not that simple. First of all, the U.S. public’s willingness to save is not strong, most families simply can not get much money to continue to buy U.S. debt. Secondly, the size of the U.S. debt is still growing rapidly, relying only on the investment of the domestic population, it is simply impossible to sustain this huge market in the long term.
What’s more, the risk of defaulting on U.S. debt has not diminished because the U.S. public has joined in. On the contrary, the risk of default is likely to intensify even further as the size of the debt grows and interest rates rise. Although ordinary investors and hedge funds have filled the gap in the market for the time being, they have limited financial strength and cannot act as firefighters all the time . Once the market environment changes, such as falling interest rates or inflation rebound, they are likely to quickly withdraw from the market, when the U.S. debt market is feared to be more difficult problem.
Therefore, in the long run, the U.S. public to take over the U.S. debt is only a stopgap measure, and can not fundamentally solve the problem. U.S. debt is too large The risk of high interest rates still exists. If the U.S. government cannot take effective measures to control the scale of debt and reduce the level of interest rates, then the U.S. debt crisis will break out sooner or later.
So, how will the U.S. national debt crisis end? This is a difficult problem to predict. But in any case, we should recognize that the debt problem is a long-term and complex process that requires the joint efforts of the government, investors and the public to solve. Only by strengthening regulation, improving transparency, promoting economic growth and other measures can we truly resolve the U.S. debt crisis and safeguard the stability and development of the global financial market.
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