In the fog-dusted corridors of finance, where ledgers whisper and numbers pretend to be gods, a former IMF official emerges like a learned cat from a velvet bag to warn about U.S. Treasuries. All the while, China, ever the prudent aunt at family dinners, is said to be schooling its banks to prune their holdings of American debt.
Desmond Lachman, once deputy director of the IMF’s shadow cabinet, speaks of “troubling signs” creeping from the treasuries market as the long-term yields stubbornly refuse to bow to the old magic of rate cuts.
According to Lachman, the government’s grand plan to shift from long-term borrowing to short-term borrowing would also have pressed long-term yields downward-but the spell has evidently yet to take effect.
“Indeed, over the past six months, the 10-year government bond yield has steadily ground up to its present level of around 4.2 percent. It has done so despite 175 basis points in Fed interest rate cuts since September 2024 and despite the fact that Treasury Secretary Scott Bessent has increased the issuance of short-dated Treasury bills to cover 80 percent of the government’s borrowing needs. That is up from a long-run average of the order of 25 percent.”
Lachman notes that foreigners, who reportedly own “around 30 percent of the $30 trillion in all outstanding US Treasury bonds,” appear to be “losing their appetite for US government bonds.”
According to Lachman, failing to “address the question of the parlous state of the country’s public finances risks a full-blown US government bond market and dollar market crisis.”
Lachman’s warning lands as Chinese officials are reportedly advising financial institutions in the country to trim their US treasury holdings.
According to a Bloomberg report, Chinese officials have urged the country’s banks to reduce their purchases of US treasuries. As of September of 2025, Chinese banks held US dollar bonds worth around $298 billion, according to the report.
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2026-02-12 21:02