The surge in U.S. government bond yields in recent months can be attributed to the reduced participation of China and the Federal Reserve in the market
Historically, China and the Fed have collectively acquired trillions of dollars in U.S. Treasury bonds, playing a significant role in financing deficits after the 2008 financial crisis and the COVID pandemic
Over the last year, the Federal Reserve has decreased its U.S. Treasury bond holdings by $650 billion
Public data indicates that China's official holdings have decreased by more than $50 billion during the same period, with a decline of nearly $300 billion since early 2021
The Federal Reserve is not actively selling U.S. Treasuries but allowing them to mature and "roll off the balance sheet" without reinvestment
There are limitations to publicly available data on China's holdings, leading to speculation that China's holdings may be flat, with some bonds stored in undisclosed locations
Both the Federal Reserve and China have reduced their purchases of U.S. Treasury bonds, and this has implications for the bond market
The Federal Reserve began purchasing long-term Treasuries as part of quantitative easing after the 2008 financial crisis to stimulate the U.S. economy, reduce unemployment, and boost growth and inflation
In contrast, today, the Federal Reserve is engaging in quantitative tightening, reducing its bond holdings due to low unemployment and inflation concerns
China, facing economic challenges and a weakening currency, may be selling some of its Treasuries and reducing exposure to the U.S. financial system