China Has Largely Exited the US Treasury Market

In 2009, the National Debt of the United States was $11.9 Trillion and today our national debt exceeds $34 Trillion.  As US debt has risen, after accounting for the decline over recent years, China’s purchases have not changed on a net basis at all, meaning as a percentage of our debt, China now holds only 1/3rd as many Treasuries as it had back in 2009, and this is despite the fact that China’s GDP rose from 5 Trillion to 18 Trillion over the same period. As reported by Zerohedge:

For the 9th month of the last 11China's Treasury holdings declined in February (the latest TIC data), dropping by $22.7BN. Additionally, it has now been 24 of the last 28 months that China's Treasury holdings have declined, now back at practically its lowest level since June 2009...

Specifically, China lends us $775,000,000,000 or 2.3% of our national debt, whereas in 2009 China lent us 6.5% of our national debt.  To fund that lending activity, China in 2009 was spending 15% of its GDP yet today China spends only 4.3% of its GDP on lending to the United States.

The decline in demand for US Treasuries increases the borrowing costs for the United States.  Further, as our allies suffer rising debt burdens in parallel, especially Europe with its boondoggle with Don Quixote’s windmills, the potential for others to finance the US debt is declining.  When we consider China’s lending throughout the third world under its belt and roads initiative, China hoovers up access to raw materials and commodities while we start wars and print dollars.

As previously reported here, this reflects poorly on the US Dollar as the world’s reserve currency.  The United States currently is the base currency for many globally traded commodities including oil.  In banking, the dollar has historically been held at a higher value and even been viewed as in short supply given global demand to execute transactions in dollars, with derivatives such as interest rate swaps and foreign bonds issued in dollars.  The higher demand for the dollar historically caused dollar basis swap spreads to reflect a premium for the dollar relative to other major currencies.  

With the dollar as the reserve currency this vastly expands the Treasury’s ability to issue debt globally.  However, as countries arrange new methods to use alternative currencies as a base to transactions and financing, the deeply indebted United States will have a harder time financing its rapidly rising debt. 

This will be seen in increasingly negative dollar swap spreads, where the US previously had substantial positive swap spreads.  In February, consistent with this concern, Reuters reported:
The spread on two-year U.S. swaps over two-year Treasuries was at -14 basis points (bps) on Wednesday, pulling away from the -23 bps hit in late December its tightest, or most negative level on record.

Shorter-term spreads used to be positive though. With the recent transition to risk-free SOFR from Libor, there is no longer a premium for credit risk embedded in swap rates that pushed them higher in the past.

Analysts also said negative swap spreads reflect investor perception that U.S. sovereign risk has deteriorated and Treasuries are no longer viewed as as risk-free.

Biden has proven that in a mere three and a quarter years, this idiot and his moronic Administration could destroy an exceedingly powerful financial system.  Granted, many bad actions occurred over the last 30 years to weaken the United States, but Biden’s corruption has vastly weakened our “credit” along side the profligate spending.

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