The security of US treasury bond bonds may not be much higher than that of German treasury bond bonds, British treasury bond bonds or French treasury bond bonds at present
For a long time, US treasury bond bonds have been touted by the financial market as the "ultimate safe haven" in the global market. However, in recent years after the outbreak of the COVID-19, the actual performance of US treasury bond has led people to question this label: the trend of US treasury bond seems to be the same as that of bonds issued by Germany, Britain, France and other countries or even large companies.
This is the main finding of a recent paper presented at the Global Central Bank Annual Meeting held in Jackson Hole, Wyoming, USA last Friday.
This research paper explores the changes in investor behavior during this period, questioning the "excessive privilege" that the US government has long enjoyed, which is that despite the widening federal budget gap, the US government continued to borrow heavily in the global market.
This is a study that is quite realistic, because regardless of who becomes the next US president, the growth of the US government deficit is almost inevitable
What did the paper discuss?
The title of this paper is "Is Government Debt in Mature Markets Safe or Risky. Hanno Lustig, one of the authors of the paper and a professor at Stanford University, gave a presentation at the Global Central Bank Annual Meeting.
The paper wrote that, in the process of responding to the COVID-19, US treasury bond investors seem to have turned to a more risky debt model to price treasury bond bonds. Policy makers, including central banks, should take this shift into consideration when assessing whether the bond market is functioning properly.
Researchers studied the behavior of treasury bond securities during the blockade of the COVID-19 in 2020. At that time, not only the yield of US bonds soared, but also the yield of bonds issued by countries around the world.
They found that investors did not buy US treasury bond bonds and then push up the value of US bonds, as they did during the tense period of the global financial market. On the contrary, investors have lowered the prices of US Treasury bonds, just as they have done with bonds from other countries.
At the same time, the Federal Reserve's response to the soaring yield of US treasury bond bonds shows that this is the result of market failure. The Federal Reserve therefore purchases bonds to restore order to the typically most liquid debt market, as it did during the global financial crisis.
Under the high-risk debt model, valuations will respond to government spending shocks, which may lead to significant fluctuations in bond market yields, "researchers pointed out, especially during the days when the US government announced fiscal stimulus measures, they found that market volatility was particularly evident.
In this environment, the large-scale asset purchases made by the central bank due to increased government spending have a negative impact on public finances, "they wrote." Although these purchases provide temporary price support, they harm the interests of taxpayers, subsidize bondholders, and may prompt the government to overestimate its actual fiscal capacity
There are four controversies
Obviously, once this paper was released at the annual meeting of global central banks, it sparked opposition from officials from the US Treasury Department and other attendees.
These opponents believe that this paper is too one-sided, and should take into account the uncertainty caused by the epidemic, the hundreds of billions of dollars of financial funds to deal with the crisis of the epidemic so far have no problems, and even if the U.S. government continues to spend large deficits, the recent decline in U.S. bond yields and other factors.
Nellie Liang, the Deputy Minister in charge of domestic financial affairs at the Ministry of Finance, commented at the meeting that the document did not reflect the uncertainty present in (special) events.
She pointed out that "with the passing of the COVID-19 Aid Act, there is more than one trillion dollars of debt... and even in March and April (2020), when governments around the world have just begun to respond to the health crisis, there is no sign of problems".
Of course, regardless of who is right, the issue of the safety of the massive US debt has indeed sparked a lot of discussion at this year's Jackson Hole Central Bank Annual Meeting. According to the data released by the US Treasury at the end of last month, the size of US treasury bond bonds has now reached 35 trillion US dollars, which is the first time that this level has been exceeded in history.
Swiss Finance Minister Karin Keller Sutter also stated in a newspaper interview published on Saturday that the debt levels of the United States and Europe pose a risk to international financial stability and Switzerland.
Keller Sartre praised Switzerland's "rigorous" financial situation in an interview, saying that it enabled Switzerland to effectively cope with the economic challenges brought by the COVID-19 pandemic and the Russia-Ukraine conflict. In contrast, other countries are heavily indebted and almost unable to take further action, "she said, citing France as an example. Or take a look at the United States. The United States is a ticking time bomb. The short-term stock market crash in early August was a warning bell