Former senior officials of the International Monetary Fund have issued a warning about US Treasury bonds amid reports China has advised its banks to reduce their holdings in US government debt.
Desmond Lachman, former deputy director of the IMF, says that there are “troubling signals” coming from the US Treasury market. The long-term bond yields have not fallen as they usually do when the Federal Reserve starts to cut rates.
Lachman says that the US Government’s move to switch from long-term to short-term debt would have also brought down long-term rates, but this hasn’t yet happened.
The 10-year bond yields have steadily increased over the last six months to their current level, which is around 4.2 per cent. This is despite Fed rate cuts of 175 basis point since September 2024, and the Treasury Secretary Scott Bessent increasing the issue of short-dated Treasury Bills to cover the 80 percent government borrowing requirements. This is an increase from the long-term average of about 25 percent .”
Lachman claims that foreigners who own “about 30 percent” of all the outstanding US Treasury Bonds worth $30 trillion are “losing interest in US Government bonds”.
Lachman says that if we don’t “address this question about the pathetic state of our public finances, it could lead to a crisis of full-blown proportions in the US dollar and government bonds markets.”
Lachman’s warning is timely, as Chinese officials have reportedly advised financial institutions to reduce their US Treasury holdings.
Bloomberg reported that Chinese officials had urged their banks to cut back on the purchases of US Treasury bonds. According to a Bloomberg report, Chinese banks owned US dollar bonds valued at around $298 billion as of September 2025.
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