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hello. This is Youngje Kim from SP Research. There is an interview Ray Dalio gave to Bloomberg . It was just shown on Bloomberg TV, and I suspect it was probably recorded, but it has already been reported in the news. The content is about two of the largest foreign creditor nations of the United States.
Demand from China and Japan is shrinking, and U.S. Treasury bonds are highly vulnerable to such contractionary movements . Warnings are being issued in that manner, and the situation is even worse because one percent of U.S. debt depends on foreign capital. So, within a certain period, it appears that TV has mentioned about three years, we will face a debt crisis.
I feel pressured watching that situation. I suppose that means they feel selling pressure. With things already so noisy in Europe, it is inevitable that one would be concerned when such talk comes up . So, along with the stories from France and Brazil, we will take another look at whether the US Treasury is truly in a crisis and whether they are selling it all off .
First, since Ray Dalier said that Japan and China are both throwing the US international ball, if we examine the situation by country, the red bar on this graph represents the July tally. The blue line represents the change in government bond holdings over the one-year period from July of last year to July of this year .
By country. Japan, United Kingdom, China, Belgium, Cayman Islands, Luxembourg, Canada, Ireland, France. It seems France is really in a hurry. There are not many countries that sell like this, both in the past and on an annual basis. Chinese pears are not that common, but they sold a large quantity. We sold $45 billion last month and $43 billion annually.
So, in the end, I kept buying and selling like this, but I hardly bought anything. However, I sold a lot last month, so the cumulative balance turned into a deficit. You can view it that way. However, the important point is that regarding Japan and China, as Ray Dalier mentioned, they sold last month and are selling again this month; Japan sold like this due to N intervention.
I think so. And similarly, the situation was one of net buying until the amount sold in July, so I think we need to look at the direct connection again after August and September . I am not saying that we should side with the U.S., but we need to look at the statistics accurately . This is because I believe we need to view things objectively.
And regarding the Chinese side, if you look at the end of the Bloomberg article, citing overseas statistical experts, it raises the question of whether the volume in Belgium actually belongs to Belgium or China. From my perspective, it's not just Belgae; rather than simply suspecting a country, the UK is also showing movements that could easily lead to the misunderstanding that it might be of Chinese origin, and the volume is simply too large.
Tax border countries like the Cayman Islands, Luxembourg, and Ireland, as well as Singapore and Hong Kong, are also worth suspecting. Because they are neighboring countries. So, looking at the figures, China sold about $78 billion annually, while Belgium sold $45 billion and Luxembourg $38 billion. If you add these two together, it is bigger than this.
There is no need to add Ireland, either. In the UK, everyone is buying things like this and that . Several financial companies are gathered here. Chinese money is also included. That is one way to think about it, and since we are looking into customs, it is too large to determine the volume here . It is complicated, so rather than here, looking at the relevant country on the other side, is it possible for it to increase like this considering the amount of change ?
My point is that when you think about it, I have doubts . I am not saying I can't trust this person, but rather that we should examine the numbers. And I will shift my focus to the internal situation in the United States and think about it. This is the change in the size of assets held by Pad. It was recorded at $8.9654 trillion in April 2022, and now it has decreased to $6.743 trillion.
And now, it also increases little by little here . It also increases because there is a movement to buy such bonds, like RP . That is how it is understood, so let's analyze it using the changes in government bonds and MBS. This red line represents mortgage bonds. MBS. They changed their asset management strategy to a form where they buy government bonds in return when MBS mature.
So, in the end, this shrinking trend is heading in this direction. You can see it that way. So, how much did the assets increase as of the end of last year? I looked into how that is related to the increase in government bonds . Looking at the increase in assets, the amount recorded $6.5358 trillion in December of last year and reached a peak of $6.7599 trillion in August of this year, so overall it increased by $224 million.
And when I looked at how much the government debt increased, it went from $4.2278 trillion to $4.5642 trillion, so the amount itself increased by $336.3 billion. When I calculated how much MBS decreased, it decreased by $ 140.9 billion when calculated using the same method . Government debt increased by 336.3 billion.
And among those, the amount that can be presumed to have been transferred is $140.9 billion, assuming that the entire amount was transferred at the MBS maturity. And the difference of $195.4 billion is missing, and that came in through the RMP. Well, whether it was 20 billion won a month or whatever amount, it came in.
That is how it can be viewed. So then, [clears throat] when we look at what will happen once the RMP is somewhat finalized, there is a mortgage bond balance of $ 1.8981 trillion remaining as of the end of September . If you move all of the nearly $1.9 trillion maturing debt to this, there is $1.9 trillion in maturing debt available to purchase government bonds.
That is how you can view it. People are worried asking, "Who will buy U.S. Treasury bonds ?" and France is also in an uproar, but in this turbulent time, China and Japan are withdrawing. I think we need to consider whether the claim that a crisis will come within a few years simply because there is no one to look for is actually valid when viewed in terms of numbers .
Let's move on to the story of France . This is a Financial Times report, and it's well-taken. This is a comparison of the yield spreads between 10-year bonds . I compared the spreads between France and Germany, and between Italy and Germany . From 2012 to 2026, the blue line is France and the red line is Italy.
Italy was a bit louder than France. France kept its distance because it was close to Greece and considered a PIGS nation . However, now that the spread between Italian and German interest rates has narrowed and the spread between French and Italian rates has risen, they crossed paths from the end of last year to the beginning of this year .
It means that France has gotten worse. So, a debt crisis emerges. That spreads to the entire Euros. It should not be viewed that way; it is a problem specific to France. Here is the reason why it can be viewed that way . The trend is wrong. What is the ratio of the fiscal deficit to GDP ? I have often shown you the American side, and I honestly wondered if I would ever need to look at the French one, but since things have been a bit noisy recently, I will take a quick look.
The fact is that the debt increased by more than 1 trillion euros during President Macron's term. So, the debt-to-GDP ratio has been steadily increasing, and it can be seen as having peaked during the Macron era. Recently, however, due to a parliamentary deadlock, it has decreased somewhat and is staying above 5%, indicating that the rate of increase has slowed .
When compared to the entire Eurozone, the calculation indicates that France's debt-to-GDP ratio is rising alarmingly high . And now, political issues are being brought up again here. Marin Lupey will now reduce the fiscal deficit by cutting the budget in the future. Because they are making arguments in that way, the economic issue is now turning into a political issue.
If the US has the Fed, the Eurozone has Lagarde 22 . We have handled the situation well so far, and even recently, when Credit Suisse collapsed, we handled it lightly. So, there is a policy here as well. By purchasing TPI, we are talking about marketable bonds issued by institutions defined by 22 for central and local governments; in short, we are referring to government bonds.
It means that they can intervene in government bonds between one and ten years, just as the Fed intervenes in the market . It is written like this in the regulations. However, there is now common-sense talk that the country in question needs to make some effort prior to the TPI. While France must resolve its own issues, if this spread were to spread to other countries, we are still monitoring the situation.
If you look at the market conditions, this is the French bond price. The low point is being determined. So here is the reason why I said last weekend that it was too late and that it had already become known to the market . I mentioned that it might be a bit late because the story about France appeared to be cited by all global economic journals on the day of the rebound, and what you really need to look at here are these stocks.
It is the reconstruction of the German Bund 10-year bond. The one below that that says OAT is from France. The one written like this at the very bottom is Italy. So, the important thing is not only how wide the spread between Germany and France is, but also whether the criterion for 22's intervention shifts to Italy or whether France spreads instability within the Euros .
You can view it this way . Just like how I view the Hanaria coal mines below—such as TLT, LQD, HYIG, Oracle, and Blue Owl— wouldn't it be worth keeping an eye on this as well? I am currently monitoring the market prices in real-time as they appear, and I think this is an issue that can be handled to some extent if we calculate and examine the spreads.
It’s not that it’s safe, but that there are people preparing for the worst-case scenario. I think we just need to look into that point. When it comes to international affairs, we can't leave this place out either . There was an election in Brazil, right? There was an election last week, in the first week of October, and it is said that a person who looks like this, named Bosonaru, won the presidential election .
This is also a country where the debt-to-GDP ratio is becoming a problem . It could be viewed as having a lot of debt, but it is said that the asset market here rose again while watching the election results . Since they failed to secure more than 50% of the vote, they say there will be a second round of voting on October 25, and the presidential election results alone are currently affecting the economy .
It is said that it cannot be viewed that way, but rather, when looking at the left and right sides from an unexpected perspective, the right wing took 303 seats, accounting for about 59%. If this person becomes president, it is not a solo victory. His party holds 120 out of 303 seats , and in the Senate, 28 out of 81 seats.
Since it is not a solo victory, a coalition government is necessary, but the interpretation is that it appears to be a situation where political negotiations capable of securing votes for a coalition are statistically possible. I don't know. I'm not sure who will become president on October 25th, but if the candidate from the opposing side becomes president, it could get a bit more chaotic .
How exactly can a coalition government manage policy? The market is currently viewing the probability of this happening to humans as somewhat high. That is why article titles are written like this . Right Wing comeback. However, the majors remain. This is how it is expressed. Overall, looking at the current situation, the flow of the asset market itself is not unrelated to politics, whether here or there.
Therefore, since political discussions often get involved when bringing up such situations, potentially leading to unnecessary misunderstandings, I believe it is appropriate to speak solely in terms of figures. So, isn't it correct to look at the French side from the back? However, inspections must be done.
That is what I think. US Treasury bonds are going to fail. It's going to fail. Well, interest rates are going up. I think it is necessary to examine the figures, accurately assess the situation, and make an argument . That concludes today's market broadcast. thank you
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