Ex-IMF Official Warns US Bond Market Flashing ‘Troubling Signs’ As China Reportedly Urges Banks To Limit Exposure to Treasuries
A former International Monetary Fund (IMF) senior official is issuing a warning on US Treasuries amid reports that China is advising its banks to cut their holdings of US government debt.
Ex-IMF deputy director Desmond Lachman says there are “troubling signs” emanating from the US treasuries market as the long-term treasury bond yields fail to fall like they have historically done whenever the Federal Reserve initiates rate cuts.
According to Lachman, the US government’s moves to shift to short-term borrowing from long-term borrowing would also have brought long-term yields down, but it hasn’t happened so far.
“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 says 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, the failure 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 comes at a time when 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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