Why are US treasury bond bonds so important?

US treasury bond refer to the bonds issued by the US government. The US federal government has been in a budget deficit for decades, so the US has to borrow a large amount of dollars from investors to pay its bills. The government issues bonds through regular auctions. These auction activities are handled by the US Treasury Department, hence also known as "Treasury bills".

The United States is the world's largest debtor, owing nearly to public investors12Trillion US dollars.


US Treasury bills have different repayment periods. The shortest repayment period among them is4Zhou, also known as one month treasury bill. The longest repayment period is30Annual treasury bills, in addition to5Period and10Annual Treasury Bonds.


Investors buy US Treasury bonds for various reasons, but the most important one is for safety reasons. The US government has never deliberately failed to repay its debts, so investors believe that in turbulent times, US treasury bond bonds are the safest and most reliable. There are various investors holding US treasury bond, including the Japanese and Chinese governments, which are the largest creditors of the US.
The US dollar remains the cornerstone of the global financial system for the next decade


The US Treasury bills are issued in US dollars, which are the primary currency used by central banks and major financial institutions around the world.


The benefits of this are obvious. Investors need to weigh risks when deciding what to invest in and how long to invest. Risk determines how much return they need to receive when they trust an investment. In other words, risk is the possibility that an investment may not succeed as expected.


Investors use US Treasury bonds as a benchmark to calculate the risk of all other investments. Even a reliable company like Apple will issue bonds, and the risk of Apple's bonds is considered higher than that of US treasury bond bonds.


The risk of all financial instruments in the United States (and many around the world) is calculated relative to the risk of purchasing US Treasury bonds. This includes mortgage loans, bank interest rates, credit card interest, other bonds, and so on. Under normal circumstances, the biggest risk of US Treasury bills is that inflation may devour the returns that investors may receive, rather than the government being unable to repay its debt.


In addition, as each country must have a global reserve currency, borrowing costs will be reduced. In addition, no matter how high the deficit is, there will not be an international balance of payments crisis because simply issuing a large amount of currency to fill the deficit is enough. Moreover, many debts are actually interest free. The Federal Reserve stated that the total1.175Two thirds of the trillion dollar cash is held overseas, which is equivalent to giving the United States a huge interest free loan. Otherwise, the United States would have to spend a year190One billion US dollars will be used for debt repayment.


The Wall Street Journal article suggests that due to the lack of evenly matched competitors, the US dollar will remain the cornerstone of the global financial system for at least the next decade and a key component of all investment portfolios.


The article states that the economic fundamentals of the United States seem to no longer match the status of the US dollar. The public finance situation in the United States is worse than most major economies except for the UK. The United States is no longer like60It dominated the world trade field like it did years ago. This is not because the United States has performed poorly, but because the world economy has become much larger than at that time.


The challenger to the US dollar will eventually emerge. After being surpassed by Germany and the United States in the UK, the pound continued to maintain its status as a reserve currency for a period of time, but its core position in the global financial system could not be sustained in the long term.


The US dollar will eventually be replaced by some currency, but this currency will not be the euro. The endless crisis in the Eurozone and the reckless decision of Cyprus to seize bank deposits have made it impossible for the euro to replace the US dollar as a reserve currency.


Due to the lack of evenly matched competitors, the US dollar will remain the cornerstone of the global financial system for at least the next decade and a key component of all investment portfolios.


The default of US bonds is equivalent to the outbreak of a third atomic bomb


As the world's largest economy, the United States1.67The trillion dollar treasury bond spreads all over the world. What risks does the US debt crisis bring to the international market?


2013In, due to the failure of the US Congress to9An agreement was reached on the budget for the new fiscal year before the end of the month, and the US government suspended operations. At that time, in the view of analysts, it was unlikely that the United States would default on its debt, but once it did, it would lead to2008The greater disaster of the annual financial crisis is as destructive as an atomic bomb explosion.


The International Monetary Fund also warns that if the US government defaults on its debt, the US economy will once again fall into recession, and the world will once again face significant financial difficulties; The OECD has stated that if the US federal government debt ceiling cannot be raised, the overall economy of the OECD may fall into another recession next year, and growth in emerging economies will also slow sharply.


Firstly, the US dollar is the center of the world's currency. The US dollar is the dominant currency in the world and the center of the world's currency. If the United States defaults on its debt, it will undoubtedly trigger a major upheaval in the US dollar, affecting the global financial and trading systems. Once a debt default occurs, it will definitely stimulate demand for the US dollar in the short term and trigger a significant rebound in the US dollar exchange rate. However, in the medium to long term, it will damage the credit foundation of the US dollar, undermine its global dominant currency position, and be quite unfavorable to the US dollar exchange rate.


Second, US treasury bond bonds are an important investment target of Wall Street. Not to mention Wall Street, the global emerging economiesforeign exchangeThe required portion of the reserve is the treasury bond bonds of the United States. For example, China has more than1The trillion dollar foreign exchange reserve is the US treasury bond bond. Once the US debt defaults, it is bound to cause many countries around the world to worry about their foreign exchange reserves, which will be followed by a major position adjustment. The status of the world's "blue chip" in the US treasury bond bond market will not be guaranteed. For a government like the US, which has always borrowed money from debt, it is no doubt that it will break its own path, and the financing way to spend other people's money on its own business will be cut off! The consequences for the US government are unimaginable.


Thirdly, the temporary closure of government departments has delayed the release of some data, such as the release of non-agricultural data in September. If this situation continues, there will be more economic data, financial data, information data, etc. that will be delayed or not counted at all. This will naturally have a significant impact on the financial market, for example, the failure of non farm payroll to release data on schedule has already affected the price trends of the money market and precious metal market. If more data is delayed or cancelled later, the liquidity of the commodity market will decrease, because the economic data of the United States is the "morphine", stimulants, and opium that increase the liquidity of the commodity market. Without these data, the financial market will become a stagnant water, which will naturally affect the discovery function of commodity prices, not to mention the speculative function. This price discovery function is not fully reflected in the financial market, and it will also affect the real economy. Commodities are important "food" for the real economy, just like rice or bread.


So, it is not possible to indefinitely shut down government departments, although not as important as national security departments, they are indispensable. Just like the eyes or ears of the human body, although not as important as the heart, once lacking, the impact is far-reaching. The price of basic resources affects the entire value and price chain, and modern commercial society is not an isolated economic chain.


Fourth, if there is a debt default, a lot of money on Wall Street will withdraw from the U.S. financial market, whether it is the treasury bond bond market, the stock market, or the commodity market. Those who are used to looking for opportunities in mature economies, the capital of developed countries will turn to developed and mature economies such as the United Kingdom, Germany, France, and Japan. This will undoubtedly bring about huge fluctuations in exchange rates, while bringing some new changes to the global economy, especially some uncertainties. The United States is the locomotive, and the U.S. economy is the engine of the global economy. Without the U.S. economy, it will be like a rocket engine failure in the air, or a plane engine shutdown in the air. That will be a disaster.


Fifthly, if the debt ceiling is not raised, a portion of funds will flow to emerging economies. Originally, a huge amount of funds withdrew from emerging economies and returned to capital markets such as the United States in the first half of the year. However, if there is a "black swan" event of debt default in the United States, these funds may have to turn around again, which is not a good thing for the financial market. All recovery and financial trends will disappear, and for emerging economies, it may not be a good thing because emerging economies are formulating new growth plans to adapt to the previous trend of capital outflows.


Sixth, from a global perspective, once the United States defaults on its debt, it may be tens of thousands of times greater than the turmoil caused by Greece's debt default! Everyone, every institution, and every country may rethink their investments to varying degrees, thinking about the value of credit? This will push the global investment values into an abyss, and the universal values of investment will be widely questioned. People will begin to lean towards conservatism, lower leverage, and cash as king. Global asset prices will trigger turbulence in the butterfly effect.


Seventh, from a political point of view, the default of the US debt is more likely than that of the US presidentAPECThe impact of the meeting is much greater, and many extremist forces see that the US government is "not working". Perhaps all kinds of demons and monsters will start to show off their skills, and new "bin Laden" will continue to emerge! The status of the United States as a world police officer and maintainer of the world order will be challenged, while also bringing more security costs. The best strategy is to surrender without fighting. The credibility and prestige of the United States are at least suppressed by many extreme challengers.


Eighth, if the United States defaults on its debt and affects the process of economic recovery and development, export-oriented economies like Japan may implement extreme anti deflation quantitative easing monetary policies, while economies like the UK may continue to increase quantitative easing or Australia may continue to cut interest rates. Meanwhile, China's monetary policy may start to "fluctuate" again, rather than insisting on static braking, and a new currency war is imminent.


China is striving to break free from the role of the largest creditor in the United States


The volume of US treasury bond bonds sold by China has gradually increased in recent years. According to statistics from the United States,2013At the end of the year, China reduced its holdings of US treasury bond bonds478USD100mn What does the recent selling behavior mean? Do China want to break free from its role as the largest creditor of the United States? Emotional analysts have warned that a possible wave of "selling off" will lead to "unexpected consequences", and have even seen signs of a "new banking crisis" erupting in the United States.


GermanyN-TVTV Station Website2month22According to a recent article, experts have lifted the alert. Patrick Hovanez, who once taught at Tsinghua University and is now the chief strategist of Silver Crown Asset Management, said: "All the discussions about China's disappointment in reducing its holdings of US treasury bond bonds are wrong. In the long run, these changes are insignificant."


The article said that China may have redeployed in the short term, but the size of its holdings of US treasury bond bonds may not have changed, because China also purchases US treasury bond through its account in the UK, and the US Treasury Department has not classified these bonds under China's name. Data even shows that China2013US treasury bond holdings increased throughout480Billion US dollars, reaching1.27Trillion dollars. On the whole, China's holdings of US treasury bond account for only about8%。


According to the article, the United States is not only heavily indebted in China, but its total debt exceeds17Trillion dollars. This world's largest economy has relied on borrowing for decades to survive. Due to its unwillingness to endure the pain of frugality, it must constantly borrow money.


However, if China reduces its investment in the bond market, will it really have a serious impact on the United States? Michael Pettis, a professor at Guanghua School of Management, Peking University, said: "The US government does not need China to buy treasury bond to finance its own deficit." Although the US bears more debt, it also has more capital than any other country.


The article also said that in any case, China was in a dilemma: in view of the huge trade surplus, China must buy US treasury bond, because it hoped to prevent the RMB from continuing to appreciate. The size and liquidity of any other market are insufficient to help China achieve this. Given China's high dependence on exports, Howanets said, "China holds bonds not to please the United States, but to boost US demand and promote its own economic growth." The United States is one of the most important buyers of Chinese goods.


In any case, the US government would prefer to see China use its foreign trade surplus to buy goods rather than invest in the US treasury bond bond market. "When US officials visit China, they will not ask the Chinese government to continue to buy US treasury bond in order to make up for the fiscal deficit, but will ask China to use the earned dollars to buy US goods and services to boost global demand," Hovanec said


LiechtensteinVPThomas Gitzer, chief economist of the Bank, said, "I don't think there will be a sudden large-scale sell-off of US treasury bond bonds." In the foreseeable future, there will be almost no problem that the US can't find investors in treasury bond. The United States is indebted to the global reserve currency, the US dollar, and without the US dollar, world trade will be unable to function. However, in the event that the Federal Reserve and China and other creditors continue to reduce their holdings, the United States is likely to pay higher interest on treasury bond bonds in order to obtain new funds.

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