The traditional view is that the central bank’s reduction of bond purchases will push up bond yields-but recent sovereign debt sales in the United States and the United Kingdom have shown that foreigners are willing to fill any demand gaps.
The Federal Reserve and the Bank of England may be the first central banks in the G4 economies, gradually lifting their huge monetary stimulus measures, and may eventually sell bonds to the market and yield on their sovereign bonds Apply upward pressure.
The Fed’s “shrinking panic” in 2013 triggered an unexpected surge in borrowing costs and market volatility, especially in emerging market economies, and policymakers will be keen to ensure that this disruption to the market is minimized.

The involvement of foreign investors will help alleviate the concerns of policymakers.
Recent US and UK bond auctions have shown strong interest in yields, safe assets, and currency and geographic diversification.
“Non-resident bond purchases are an undervalued force,” said Chris Marsh, senior consultant at Exante Data and a former economist at the International Monetary Fund, noting that demand from this source may help shape yields in the U.S. and the U.K. The curve depends on market conditions. “They may end up buying a lot of things.”
They have bought a lot and set records through certain measures. Of the $41 billion 10-year U.S. Treasury bonds auctioned earlier this month, “indirect bidders”-widely regarded as agents of foreign investors, usually central banks and reserve managers-accounted for 77.3{7d6bb1f761e691f027164c9fe6d1ebbc4659a250013ce39dc45a15ede39dbac5}. Set a new record.
According to data from the Bank of England as of June, British government bonds purchased by foreign investors have increased to 98.5 billion pounds in 12 months, which is also a record high.
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Data from the Treasury Department this week showed that foreign holdings of US Treasury bonds increased by US$67 billion in June, reaching the highest level since February 2020. U.S. Treasury bonds held by major foreign holders are US$7.2 trillion, the second-highest on record.

Of course, it remains to be seen whether this demand will continue when it begins to shrink, and if so, whether it will be sufficient to limit any surge in yields. Global market conditions and capital flow dynamics will greatly help determine this.
There are few examples of similar scenarios, but the Fed’s 2013 “shrinking panic” and subsequent reductions are worth considering. On May 22, the Fed Chairman Ben Bernanke told Congress that if conditions permit, the Fed may slow down its bond purchases “in the next few meetings”. At that time, the 10-year Treasury bond Yields are already rising.
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