Massive Sell-off: US Debt Drops to $870B

In recent months, the U.S. Treasury bonds we hold have shown a straight-line decline, with China's pace of selling U.S. Treasury bonds accelerating.

As the global economic landscape has continued to evolve over the years, more and more countries have realized that holding too many U.S. Treasury bonds is not a good thing. However, for China, which previously held U.S. Treasury bonds worth 1.3 trillion, it is impossible to quickly liquidate them in a short period of time.

But it is precisely because of the opportunities created by the United States that we have been able to continuously increase the intensity of selling U.S. Treasury bonds recently.

Some American financial media have solemnly warned that, judging from the current trend, China may continue to sell U.S. Treasury bonds in a clearing manner.

01, Acceleration of Sales

Let's first look at some key moments when China held U.S. Treasury bonds in the past.

In 2013, our country's foreign exchange reserves reached a peak of nearly 4 trillion U.S. dollars, and the scale of U.S. Treasury bonds held at that time was also the highest, exceeding 1.3 trillion U.S. dollars.

After that, the balance of U.S. Treasury bonds held began to decline gradually, but the pace of reduction was not fast. It was not until 2021 that it finally fell below 1.1 trillion U.S. dollars, taking 8 years, with a net sale of only 200 billion U.S. dollars.

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However, by the beginning of last year, in less than a year, it reduced by more than 100 billion, and for the first time, the U.S. Treasury bonds in our country's foreign exchange reserves fell below 1 trillion U.S. dollars.

Then, by November 2022, the U.S. Treasury bonds held by our country once again fell below the integer mark, and the current balance is only 870 billion U.S. dollars.In just the past year alone, our country's sale of U.S. Treasury bonds has reached $210 billion, equivalent to the total amount of reduction over the eight years following 2013.

In 2013, our foreign exchange reserves were $4 trillion, and our holdings of U.S. Treasury bonds were $1.3 trillion, accounting for about one-third.

Some time ago, when our holdings of U.S. Treasury bonds were $1 trillion, our foreign exchange reserves were slightly over $3 trillion, still one-third.

But recently, our foreign exchange reserves have grown slightly, approaching $3.2 trillion, and now our holdings of U.S. Treasury bonds have decreased to $870 billion, with the proportion of U.S. Treasury bonds in foreign exchange reserves falling to about 27%.

It can be seen that not only has the speed of our sale of U.S. Treasury bonds accelerated, but the proportion of U.S. Treasury bonds in foreign exchange reserves is also continuously declining.

02, The Determination to Sell

It is inevitable that China continues to sell U.S. Treasury bonds.

Firstly, the risk of holding U.S. Treasury bonds is increasing.

At the end of 2021, U.S. Treasury bonds were about to exceed the legal limit at that time, and the U.S. Congress raised the limit to $31.4 trillion, but only a year later, by December 2022, U.S. Treasury bonds were again about to exceed the limit.

This is actually a rogue approach, essentially making up for the deficit by continuously borrowing new debt, which leads to an increasing risk of default on U.S. Treasury bonds.Secondly, the price of U.S. Treasury bonds is continuously falling.

The Federal Reserve keeps raising interest rates, and central banks around the world keep selling U.S. Treasury bonds. Until recently, the Federal Reserve itself joined the ranks of selling U.S. Treasury bonds, resulting in the largest annual decline in the price of U.S. Treasury bonds in more than 10 years.

The balance of U.S. Treasury bonds held is visibly shrinking at an eye-catching speed.

Thirdly, de-dollarization is imperative.

In the past, one-third of our foreign exchange reserves were U.S. Treasury bonds, plus other U.S. dollar assets, which is equivalent to being held hostage by the U.S. dollar.

In recent years, the international status of the renminbi has been increasingly rising, and we need to reduce our dependence on the U.S. dollar even more.

Considering various factors, we need to keep selling U.S. Treasury bonds.

03, the opportunity given by the United States

However, everyone must have noticed that in the past many years, the speed at which we sold U.S. Treasury bonds was relatively slow.

The reason is that selling U.S. Treasury bonds would cause the renminbi to appreciate, which is very unfavorable for our country's foreign trade exports.But unexpectedly, the United States has created favorable opportunities for us to sell off assets. Last year, the Federal Reserve raised interest rates by 425 basis points in just half a year, causing the US dollar index to rise significantly, which in turn led to a substantial depreciation of the Chinese yuan exchange rate.

In this context, even if we increase the intensity of selling US Treasuries and the yuan gains upward momentum, it is offset by its inherent downward trend, and the real pressure for appreciation is not significant.

Therefore, in the recent months, after we have massively sold off US Treasuries, the yuan exchange rate has indeed rebounded, but it is still lower than the exchange rate at the beginning of last year.

This also implies that for at least the next six months, we can still significantly sell off US Treasuries.

Judging by the current pace, by the middle of this year, our holdings of US Treasuries will break through several round numbers.