Research on why is it unnecessary that U.S. pays Chinese debt.

Apr 14, 2016
by: lancegui

Amount of U.S. treasury bond owned China shifts and it indicates not only the market in China, but oversea. U.S. debt to China is not a similar structure as the mortgage you see in daily life. Sometimes treasury bond and somehow Federal Reserve Interest rate are tighten closely. Lower Fed interest rate allows the foreign investors hold large portion of the debt, and when Fed rises the interest rate, the foreign investors have to back on their domestic market rather than oversea. It is a complicated that cannot be explain in a few sentence, and that's why I choose this to do on research paper.

Some analysts have warned for years that persistent fiscal deficits made the U.S. Treasury market vulnerable to a reduction in foreign purchases. But many investors say they believe longtime holders such as China won’t sell bonds in a way that threatens to disrupt the market.
“I can’t rule out China being a big risk to the bond market but it’s not something that is keeping me awake at night,’’ said James Sarni,senior managing partner at Payden & Rygel in Los Angeles, which manages $95 billion. “While they may decide to sell more Treasury bonds, the transactions are likely to be done in a prudent way.”
Indeed, bond yields have remained persistently low for the past decade and have fallen sharply since the 2008 crisis, thanks in part to strong official and private demand for debt deemed safe.

The plunge in dollar-debt raising is partly down to Chinese corporate borrowers relying more on their home market for financing, which has become cheaper as the central bank there has cut interest rates. Other Asian companies are showing less appetite for debt as they dial back investment spending in light of China’s slowing economic growth.

The soaring value of the American dollar is rippling across the globe.
In India, it is a leading electric utility, Jaiprakash Power Ventures, selling off facilities and negotiating with lenders to avoid a default, having increasing its debts thirtyfold in six years.
In China, it is one of the country’s largest real estate developers, the Kaisa Group, threatening to pay only 2.4 cents on the dollar to its creditors in the face of corruption investigations and a mass resignation of executives, leaving countless would-be Chinese home buyers stuck in the middle of a multibillion dollar standoff.
And in Brazil, a wave of bankruptcies among sugar producers has been driven not just by falling sugar prices, but also by debts that they owe in United States dollars, which are becoming more expensive practically by the day compared with the Brazilian currency.
As it rises, it is threatening emerging economies where companies have taken on trillions’ worth of dollar-based debt in recent years.

Much of China’s Treasury holdings are invested in its foreign-exchange reserves, analysts say, which fell dramatically in those two months as the people’s bank of China stepped in to support.