U.S. Debt Rebounds, China's Holdings Dip Below $900B

Recently, there has been a significant decline in U.S. Treasury yields, indicating a rebound in U.S. Treasury prices at lower levels.

In this context, many American financial media have been calling on investors and central banks around the world to seize the opportunity to buy U.S. Treasuries at low prices.

Over the past year, China has been reducing its holdings of U.S. Treasuries by as much as $170 billion. Should it also buy U.S. Treasuries to take advantage of this opportunity and make a substantial profit?

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At present, the only major yield above 4% is for two-year Treasury bonds, which have been continuously approaching the 4% mark, with the latest data at 4.07%, and it is very likely to break below the 4% threshold in the near future.

What is more concerning to the financial market is the yield on 10-year Treasury bonds, which started from 1.5% at the beginning of last year, not only broke through 4% in October last year, but even reached above 4.3%. Now, this yield has been continuously falling and has already dropped below 3.4%.

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Due to repeated interest rate hikes, the current U.S. federal funds rate has risen to between 4.25% and 4.5%. Therefore, the main medium and long-term U.S. Treasury yields have all fallen below the federal funds rate.

A mountain that has been pressing on U.S. Treasuries seems to be slowly being removed.

Contrary to the previous situation where U.S. Treasury yields kept rising and U.S. Treasury prices kept falling, in the recent one or two months, we have indeed seen a rebound in U.S. Treasury prices.

Should China really bottom-fish?02

The significant decline in U.S. Treasury yields indicates a noticeable increase in the trading prices of U.S. Treasuries during this period, with an increasing number of investors taking advantage of the low levels to bottom-fish.

A common phenomenon we often observe in the U.S. Treasury market during this period is that yields rise temporarily during the trading day but quickly fall back down. This suggests that each rapid decline in U.S. Treasuries is met with capital inflows, supporting the prices to rebound higher.

Now, an increasing number of retail investors are taking an interest in purchasing bonds, as the market generally believes that inflation has peaked and is on the decline. U.S. Treasuries, which had previously fallen sharply, are undoubtedly a good opportunity for bottom-fishing.

In October last year, the annual decline of the U.S. Treasury Bond Composite Index once exceeded 15%, and the drop was even the largest annual decline for the index in nearly 50 years. However, this decline has been narrowing since then.

Investors who entered at the lowest point have already achieved decent returns, which further encourages more investors to enter the market.

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However, for central banks, buying or selling U.S. Treasuries is primarily aimed at asset allocation rather than investment returns.

This is a significant difference from ordinary investors, especially retail investors.

The U.S. Department of the Treasury has released the latest data on U.S. Treasuries, and we see that China's holdings of U.S. Treasuries have once again experienced a substantial decline.The latest monthly data indicates that our country's holdings of U.S. Treasury bonds have decreased by over 30 billion. China did not take advantage of the low prices to buy U.S. Treasury bonds, but precisely because of this, it has given us greater peace of mind.

In fact, if we do the math, it becomes very clear. This time, our U.S. Treasury bond holdings decreased by nearly 40 billion. But if we had increased by 40 billion, what would the outcome be?

Even if the price of U.S. Treasury bonds rebounded by 5%, and we bought an additional 40 billion worth at lower prices, we would only earn an extra 2 billion U.S. dollars.

However, we would have taken on the additional risk of holding 40 billion more in U.S. Treasury bonds.

If China holds too many U.S. Treasury bonds, it would be at a disadvantage in future competition between China and the United States. On the contrary, we are taking this opportunity to continuously reduce our holdings of U.S. Treasury bonds, which not only can enhance the exchange rate of the Chinese yuan, reduce dependence on U.S. dollar assets, and continuously de-dollarize, but also free up funds to buy more gold and optimize the allocation of foreign exchange reserves.

Furthermore, we will continue to improve the international status of the Chinese yuan.

All of these are not measurable by investment returns.