A former top official at the International Monetary Fund (IMF) is issuing a warning on US Treasuries amid reports that China is advising its banks to reduce their holdings of US government debt.
Former IMF Deputy Director Desmond Lachman says there are “worrying signals” emanating from the US Treasury bond market, as long-term Treasury yields are not falling as they have historically done whenever the Federal Reserve initiates rate cuts.
According to Lachman, the US government’s moves from long-term to short-term borrowing would also have reduced long-term yields, but that has not happened so far.
“In fact, over the past six months, the yield on 10-year government bonds has been steadily falling to its current level of around 4.2 percent. It has done so despite 175 basis points in interest rate cuts by the Federal Reserve since September 2024 and despite Treasury Secretary Scott Bessent increasing the issuance of short-term Treasury bills to cover 80 percent of the government’s borrowing needs. That is an increase from a long-term average of around 25 percent.”
Lachman says that foreigners, who reportedly own “about 30 percent of the $30 trillion in all U.S. Treasury bonds outstanding,” appear to be “losing their appetite for U.S. government bonds.”
According to Lachman, failure to “address the sorry state of the country’s public finances risks a complete crisis of the US government bond market and the dollar market.”
Lachman’s warning comes at a time when Chinese officials are reportedly advising the country’s financial institutions to reduce their holdings of the US Treasury.
According to a Bloomberg report, Chinese officials have urged the country’s banks to reduce their purchases of US Treasuries. In September 2025, Chinese banks held US dollar bonds worth around $298 billion, according to the report.
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