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Reducing trade deficit with China to lead to lower demand for US bonds

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Reducing trade deficit with China to lead to lower demand for US bonds

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According to BlackRock CEO Laurence Fink, demand for US Treasury bonds may decrease in the near future.

The businessman believes that when China reaches a trade agreement with the United States and lowers its trade surplus, the country’s government will stop buying US Treasury bonds. During the trade war, China reduced its holdings from $1.184 trillion to $1.123 trillion. As cited by BlackRock, the resolution of the trade conflict will only accelerate this process.

Mr Fink stated that a further growth in the share of China's government bonds in the global market would lead to a decrease in demand for American public debt. Martin Feldstein, Professor of Economics at Harvard University, expresses similar concerns. The leading economist claimed that the demand for US government bonds from foreign countries was declining.

BlackRock is sure that a significant increase in interest rates on US debt is the most likely outcome of the scenario in which the purchase of US national debt is decided. Experts say a spike in payments will rise the attractiveness of treasuries.

Analysts are confident that if demand for US debt obligations drops noticeably, interest rates will jump to higher levels.

According to most American economists and major financiers, in an attempt to renegotiate the previous trade agreements, the US risks aggravating its financial problems. These measures reduce the predictability of the foreign economic course of the American authorities and the attractiveness of investment in the US debt. The United States is steadily turning from the world's largest developed economy into a country of an increasing debt crisis, experts sum up.

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