Summary of US Debt Related Issues! Why are they all selling US Treasury bonds? What are the consequences of the chain reaction after the maturity of US bonds? Q: Will the government repay more money when bond yields rise? A: The government issues bonds in the primary market, and once issued, the amount to be repaid is fixed. The so-called yield refers to the yield in the secondary market. Because the transaction price in the secondary market is not fixed and the yield is also different. For example, when the government issues bonds, it buys you a 100 yuan bond at a discount of 95 yuan and repays you 100 yuan at maturity. The additional 5 yuan is considered as interest. This bond in the secondary market has a possibility of 96 transactions or 94 transactions. The higher the transaction price, the lower the yield, and vice versa. The transaction price of bonds is inversely related to the yield. Long term bonds pay interest on a fixed cycle and repay principal at maturity, but the principle is the same. Q: So, bond yields do not affect the government's ability to repay debts? A: Originally it wouldn't have affected, but the size of US Treasury bonds is too large, currently exceeding 36 trillion yuan. Such a scale of debt is impossible to repay, only borrowing new to repay old. If you borrow new bonds, you need to issue new bonds, and the interest rate of issuing new bonds cannot be lower than the yield of the secondary market. Otherwise, why don't others buy in the secondary market, right? Therefore, it is best for the government to issue bonds in a low interest environment Q: How many are there in the bond market? A: The bond market is divided into primary and secondary markets. The primary market is the direct issuance of bonds by the government for social financing, while the secondary market is the market formed by bond holders trading bonds with each other Q: What kind of environment can lead to a decrease in US bond yields? A: If you want a simple and rough answer, then the Fed's interest rate cut will go down. But the yield of US Treasury bonds is not about raising interest rates or cutting interest rates, but about inflation expectations. If inflation expectations are high, yields often rise as well. If your yield is only 2% and inflation reaches 3%, wouldn't it still be a loss after deducting inflation? So at this time, bonds are often sold, selling=price decline=yield increase. However, one of the main functions of the Federal Reserve is to control inflation. When inflation expectations are high, it often raises interest rates, so the general understanding is that raising interest rates equals increasing yields. It cannot be miscalculated, but this is an indirect logic. If the market believes that inflation has been controlled and will soon experience a reversal, then even if it is still in the interest rate hike cycle, the yield may still decline (the logic of bottom fishing) Another possibility is that the demand for safe haven has exceeded inflation. For example, if the environment in other countries around the world is not good, capital will flood into the US bond market for hedging (traditionally, US bonds are risk-free bonds), thereby lowering yields. Q: Do Chuanzi currently possess these two conditions? A: Unfortunately, none of them are available. The tariff war has brought very high inflation expectations, and in the environment of industrial decoupling between China and the United States, the United States itself has become the biggest source of risk. Therefore, it is impossible for the yield of US Treasury bonds to naturally decline. Q: Is this the reason why Chuanzi called on Master Bao to lower interest rates? Want to lower the yield to facilitate his bond issuance? A: He may indeed think so, but even if a rate cut is made, it is difficult to say how much effect it will have. Just now, I said that the yield of treasury bond is basically based on inflation expectations and risk aversion demand. Interest rate cuts will bring greater inflation expectations, and most of the released liquidity will not stay in the United States. The recent triple kill of US stocks, bonds, and foreign exchange indicates that capital is using their feet to vote and escape the US market Q: So how about Chuanzi directly issuing bonds at high interest rates? Anyway, it's all borrowed money. If it's a big deal, we can borrow it later A: If there is really no other way in the end, this is certainly a reality that must be accepted. But this is not without cost. As mentioned earlier, short-term bonds are paid together with principal and interest upon maturity, while medium - and long-term bonds pay interest regularly and return to principal upon maturity. Issuing high interest bonds will increase government interest expenses. Government revenue is limited. If you have more interest expenses, you will have less other expenses. Without money, what can you do? Moreover, as you are paying more and more interest now, the next bond issuance amount will also increase. The external acceptance of US bonds is ultimately limited. If no one takes over the offer, then there will only be one way to breach the contract Q: The Federal Reserve will take over the deal. The Fed will print money on its own, so are you afraid it won't be able to take over? A: That's what it says, but the Federal Reserve cannot directly take over the market. There is a Federal Reserve Act in the United States that restricts the Federal Reserve from directly participating in the primary market and can only buy from the secondary market. That is to say, the Federal Reserve cannot directly take over the market from the government, as there are legal restrictions. Therefore, it is ultimately necessary to find a buyer in the primary market. The deadline for the maturity of the US Treasury bonds in June is already very close, and it is impossible for Kawako to amend the legislation. There is no time left. How would he operate? I also really want to know I have envisioned some paths, such as using the government's white gloves to acquire shares in the primary market and then reselling them to the Federal Reserve, or the Federal Reserve directly providing loans to existing primary market buyers (Goldman Sachs, JPMorgan Chase, etc.) and acquiring shares in the secondary market. I only know about this Federal Reserve Act, and I haven't read the specific details. I don't know if these operations can be bypassed. We can only wait and see the situation Q: That being said, there is eventually a way to take over the deal. So it's okay now? Anyway, if we follow this procedure in the future, the 36 trillion yuan debt will not be achieved overnight. We must have operated it many times before A: It can only be said that there will be no debt default, but in the long run, excessive currency issuance is certain. Can the US dollar still remain strong despite excessive currency issuance? The essence of the US debt issue is the concretization of the Triffin dilemma, which requires both the hegemony of the US dollar and the support of infinitely expanding debt. The two are fundamentally contradictory. So when issuing US bonds, external buyers (including foreign central banks and domestic institutions) will be given priority, rather than directly letting the Federal Reserve provide a backstop. This uses the existing US dollars in the market, which temporarily mitigates the risk of currency over issuance. But how large plates can external buyers accept? So this is a situation where one stick is stuck at both ends, the Federal Reserve cannot provide a bottom line, defaults on debt, the US Treasury dies suddenly, the Federal Reserve provides a bottom line, the currency is oversold, and the US dollar is slowly dying. Of course, if you have to choose one, slow death is better than sudden death, it's better for everyone. As we have discussed before, the biggest problem in the US stock/cryptocurrency industry today is not the lack of earning opportunities, but the lack of certain assets that can be held with peace of mind. Because Trump is constantly changing and capricious, when everything calms down, the bull market may come quietly. The stronger the uncertainty, the more chaotic and panicked the market becomes, and the greater the opportunity!