Courtesy: Business Insider
In the midst of soaring US Treasury yields, questions have arisen about whether China’s actions are contributing to this market upheaval. To shed light on this mystery, we turn to insights from Brad Setser, a former Treasury official.
The Bond Market Dilemma
The recent surge in US Treasury yields, the highest in 16 years, has left economists searching for explanations in one of the most significant market crashes in history. Central bankers have suggested the necessity of further rate hikes to curb inflation, and robust economic data, including a strong jobs report, has only added to the bond market’s turmoil.
Apollo Global Management’s Torsten Sløk drew attention to China, citing official US data indicating a $300 billion sale of Treasurys since 2021. However, Setser argues that this data doesn’t paint the whole picture.
Setser highlights that official US Treasury International Capital data only reflects foreign holdings held in US custodians. An adjustment for offshore custodians, such as Belgium’s Euroclear, reveals China’s US bond holdings as more stable, estimated between $1.8 and $1.9 trillion.