Introduction

Just when everyone thought the situation of U.S. Treasury bonds was grim, the prices of U.S. Treasury bonds once again took a turn for the better, which made U.S. Treasury Secretary Yellen, who was once very worried about this, very happy. She no longer worries about the decline in the prices of U.S. Treasury bonds, but now she is worried about the buyers of U.S. Treasury bonds.

U.S. Treasury bonds have been rising for four consecutive months, which is not a common occurrence. Moreover, the United States has almost sold U.S. Treasury bonds to the whole world, and even bought back a large amount of U.S. Treasury bonds by itself.

However, with some recent signs, the situation in the U.S. Treasury bond market may change again, and the buyers of U.S. Treasury bonds are becoming more and more worrying.

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What is Yellen worried about?

What kind of new crisis is the United States facing?

The prices of U.S. Treasury bonds have taken a turn for the better again.

It was unexpected that the prices in the U.S. Treasury bond market took such a magical turn for the better, and Yellen was once very anxious about the ups and downs of the prices of U.S. Treasury bonds, full of worries.

The prices of U.S. Treasury bonds have always been very stable, and they are also the largest market in the world, as well as an indispensable part of global asset allocation. Therefore, the prices of U.S. Treasury bonds are mostly very stable most of the time, and there are very few violent fluctuations.

It was in 2016, after Trump took office, that the United States began to vigorously expand the war and greatly increased the issuance of U.S. Treasury bonds. This led to a large supply of U.S. Treasury bonds in the market. However, due to the fact that the demand for U.S. Treasury bonds did not increase significantly with the increase in supply, the prices of U.S. Treasury bonds faced the risk of a significant decline.At the same time, the United States has also secretly limited other countries' purchases of its Treasury bonds, casting a shadow over the prices of these bonds.

However, this did not attract the attention of US Treasury Secretary Yellen, who, for a considerable period after, was engaged in a dispute with the Federal Reserve Chairman over the issues arising with Treasury bonds.

But the prices of Treasury bonds did not stabilize as a result; instead, they fell into a continuous decline, even dropping by over a hundred percentage points in 2018, which truly made Yellen restless.

A year later, this state persisted for two or three years, causing Yellen some anxiety.

But recently, the prices of Treasury bonds have started to rise continuously, even experiencing a four-month streak of increases, all of which were beyond Yellen's expectations.

The rare increase in Treasury bond prices delighted Yellen, making her feel that she could finally have some peace in various aspects.

However, just a few days later, Yellen noticed something amiss, causing her to become restless again.

The recent rise in Treasury bond prices is mainly due to the United States beginning to discuss the possibility of the Federal Reserve lowering interest rates, especially during the period after the pandemic when the US economy gradually returned to normal activities, and the financial markets started to speculate on the expectations of a rate cut by the Federal Reserve.

The Federal Reserve has always maintained a waiting attitude, intending to decide whether to lower interest rates after the pandemic is officially resolved and the economy recovers, even to the state before the outbreak.

But the market sentiment in the United States has always been very impatient, continuously anticipating that the Federal Reserve would lower interest rates, and as a result, the prices of Treasury bonds gradually increased amidst such sustained expectations.The Issue of U.S. Treasury Bond Buyers

In addition to some government agencies within the United States, central banks of other countries, as well as international institutions and funds, are among the largest buyers of U.S. Treasury bonds. Over the past few years, amidst the constant fluctuations, the market has managed to maintain a stable level primarily because these bonds were sold to the entire world, and the sheer number of buyers naturally amplified their collective strength.

However, when the United States was selling these bonds, it did not anticipate that one day their prices would plummet to such an extent. If the U.S. were to sell Treasury bonds again now, it would not be cost-effective.

Selling U.S. Treasury bonds at this point would result in significant losses for large institutions that hold a substantial amount of these bonds. With the recent rise in the prices of U.S. Treasury bonds, these major holders must be breathing a sigh of relief, expressing that they can finally make some profits.

Nevertheless, this surge in the prices of U.S. Treasury bonds could also trigger a decline, as it is well-known that their prices have always been quite stable. Such a sudden and substantial increase is bound to raise market vigilance: is something amiss?

Should the Federal Reserve lower interest rates in line with market expectations for U.S. Treasury bond prices, there would undoubtedly be significant fluctuations, with the most likely outcome being a drop in prices.

After the interest rate cut, various institutions and funds within the United States would become major buyers, taking on a large volume of U.S. Treasury bonds.

Currently, leveraged funds are prevalent throughout the United States, particularly among some internet finance institutions. These institutions have a substantial amount of capital that requires an investment outlet.The United States itself holds a massive amount of U.S. Treasury bonds, which are sold primarily to finance activities for the government, commercial banks, and central banks. However, the sale of these bonds on the market does not yield immediate returns; instead, it requires a significant delay before any capital can be recouped or a profit made.

In the past, U.S. funds invested in other sectors by purchasing a large volume of Treasury bonds. Once these bonds mature, if the Federal Reserve lowers interest rates, domestic U.S. funds and institutions will rush to buy these bonds at lower prices, thereby earning greater profits.

Ultimately, the end buyers of these bonds are ordinary households. With fewer assets in hand, they are the most likely to be unable to withstand the drastic fluctuations in bond prices. They may incur losses when purchasing and are even more hesitant to sell before maturity, thus having to bear greater losses. This chain reaction can ultimately lead to a sudden collapse in bond prices.

The final holders of U.S. Treasury bonds.

After the official announcement of the collapse of U.S. Treasury bonds, the final holders will be ordinary households within the United States. These bonds have fallen precisely within the scope of China's "counterattack."

In the context of a competitive relationship between China and the United States, the U.S. has enlisted many other countries and institutions to "deal with" China. Yet, the ultimate destination of U.S. Treasury bonds is China.

The latest data on China's holdings of U.S. Treasury bonds show that the total asset amount has exceeded one trillion U.S. dollars.

For China, with the second-largest Gross Domestic Product (GDP) globally and the total assets of U.S. Treasury bonds also ranking in the top two, it is evident that China has become the largest creditor of the United States.

On the other hand, the United States has almost provided the largest export market globally for China, making the U.S. one of China's largest creditors.

The relationship between the United States and China is almost one of mutual binding, which also makes the U.S. more cautious in dealing with China, exercising greater prudence in its sanctioning actions against the country.So in fact, the United States does not dare to "reclaim" the trillions of U.S. debt in their hands. To some extent, the U.S. does not dare to impose direct sanctions on China, which is something that some people in China do not understand.

If the United States really fails to redeem these U.S. debts one day, China does not need to retaliate against the United States. These "debts" of the United States will eventually fall into the hands of China, which is one of the ultimate goals of China's sanctions.

Conclusion

However, from another perspective, the issue that Yellen is worried about can actually reflect how complex the financial market in the United States is, and how fragile their financial system is.

They are all facing a huge risk, which may even affect other countries. For such a problem, everyone in the United States should take it seriously.

Ordinary families, as the ultimate holders of U.S. debt, should pay more attention to the price trend of U.S. debt and be prepared to deal with market fluctuations at any time.

For governments and institutions, if a U.S. debt crisis really occurs one day, they must take on greater responsibility, manage better, disperse risks, and avoid crises.