Core Viewpoint - The article discusses the increasing levels of U.S. debt driven by the potential passage of the "Beautiful Act" and the rising net deficit, which is expected to continue elevating U.S. debt levels over the next decade. It highlights the key holders of long-term U.S. Treasury bonds and their respective investment rationales. Group 1: Who Holds Long-Term U.S. Treasuries? - Foreign investors are the largest holders of U.S. Treasuries, followed by the Federal Reserve. As of Q1 this year, total U.S. Treasury holdings amount to approximately $26.9 trillion, with foreign investors holding about $9 trillion, accounting for roughly 33% of the total [1][4][10]. - The Federal Reserve's holdings peaked at over 26% during the QE period in 2021 but have since decreased to about 14% due to ongoing balance sheet reduction [4][10]. - Post-pandemic, U.S. households and non-profit institutions, including hedge funds, have significantly increased their Treasury holdings, rising from around 3% in 2021 to the current 11% [4][5]. Group 2: U.S. Investors' Rationale for Buying Treasuries - The Federal Reserve holds Treasuries for balance sheet management and is currently in a process of reducing its holdings, which have decreased from $5 trillion in May 2022 to $3.6 trillion in May this year [13][14]. - U.S. commercial banks buy Treasuries to meet liquidity regulations, particularly when the yield curve steepens, but their holdings are limited by supplementary leverage ratio (SLR) constraints [14][19]. - Pension funds and insurance companies invest in Treasuries primarily for asset-liability management, although their overall allocation to Treasuries remains relatively low [16][19]. - Households tend to invest in Treasuries for higher yields, especially when stock market returns decline relative to bond market returns, while also considering safety, liquidity, and inflation protection [19][20]. Group 3: Overseas Investors' Rationale for Buying Treasuries - Overseas investors view U.S. Treasuries as safe and stable investments, supported by the U.S. government's creditworthiness and the market's depth and breadth [22][24]. - Official foreign institutions hold Treasuries for foreign exchange reserve management and to ensure asset safety, as Treasuries are among the safest and most liquid assets globally [24][26]. - Some foreign official institutions, like Japan, have sold Treasuries to manage currency exchange rates, intervening in the market to stabilize their currencies [26][29]. - Non-official foreign investors may purchase Treasuries to hedge against currency risks, often using cross-currency swaps to manage their exposure [29].

Group 1 - The U.S. Treasury Department reported that investment funds purchased $40.967 billion in 3-year U.S. Treasury bonds during the latest biweekly reporting period, down from $43.185 billion the previous month [1] - Investment funds bought $16.295 billion in 30-year U.S. Treasury bonds, a decrease from $17.763 billion last month [1] - Purchases of 10-year U.S. Treasury bonds by investment funds amounted to $29.07 billion, slightly up from $28.942 billion the previous month [1] Group 2 - Foreign investors bought $6.35 billion in 3-year U.S. Treasury bonds, an increase from $5.552 billion last month [1] - Foreign purchases of 10-year U.S. Treasury bonds totaled $5.293 billion, down from $7.875 billion the previous month [1] - Foreign investors acquired $2.518 billion in 30-year U.S. Treasury bonds, a decrease from $3.006 billion last month [1]

Group 1 - The core viewpoint of the article is the potential impact of the "One Big Beautiful Bill Act" on the U.S. fiscal deficit and debt growth, raising concerns about fiscal sustainability [1][3][17] - The bill proposes a tax reduction of approximately $3.8 trillion over the next decade, accounting for about 5.8% of fiscal revenue, with a significant portion aimed at extending individual tax cuts [1][6][12] - The projected increase in net deficit is about $2.4 trillion over the next ten years, with spending cuts estimated at $1.5 trillion, primarily affecting healthcare, student loans, and food stamps [6][17][20] Group 2 - The bill includes provisions for punitive taxes on foreign investors, potentially raising an estimated $116.3 billion over ten years [8][10] - The Senate is expected to propose a more lenient version of the bill, allowing for a net deficit increase of up to $5.8 trillion, compared to the House's $2.4 trillion [12][13] - The current debt-to-GDP ratio is projected to reach 120.8% by Q1 2025, surpassing World War II peaks, indicating growing concerns over fiscal sustainability [20][18] Group 3 - The U.S. Treasury is likely to issue more short-term debt to manage cash flow, especially after the debt ceiling crisis is resolved [2][25][37] - The demand for short-term debt has been primarily driven by money market funds, with a significant reduction in overnight reverse repurchase agreement (ON RRP) balances [26][28] - The introduction of stablecoin regulations may alleviate some pressure on short-term debt, as the market for stablecoins is growing rapidly [32][33]

Investment Rating - The report maintains a neutral investment rating for the US dollar bonds [1][4]. Core Views - The US labor market shows signs of weakness, with May non-farm payrolls increasing by 139,000, the lowest in three months, and the unemployment rate effectively rising to 4.244%, the highest since 2021 [1]. - The Federal Reserve's Beige Book indicates a slight economic slowdown, with businesses planning to pass on costs due to tariffs and uncertainty, leading to a pessimistic outlook [2]. - Market expectations for interest rate cuts remain at two times within the year, with the first anticipated in September, despite external pressures [3]. Summary by Sections US Macro Economy and Liquidity - The labor market is showing signs of fatigue, with a decrease in full-time positions exceeding 600,000 and a labor participation rate dropping to 62.4% [1]. - Wage growth is strong, with a month-on-month increase of 0.4% and a year-on-year increase of 3.9%, primarily due to a contraction in labor supply rather than strong demand [1]. Overseas US Dollar Bonds - The report suggests a focus on structural selection in US dollar bond investments, prioritizing medium to short durations while being cautious with long-term bonds [4]. - The long-term yield of US bonds is under pressure due to fiscal deficits and supply-demand imbalances, with a recommendation to consider TIPS or floating rate bonds to hedge against inflation and interest rate risks [4]. Rating Actions - In the past two weeks, three major international rating agencies have made nine rating actions on Chinese dollar bond issuers, including five upgrades and three downgrades [94]. - Notable upgrades include Shandong Hi-Speed Group Co., Ltd. from A- to A by Fitch, and China Minsheng Banking Corp., Ltd. from BB+ to BBB- by Fitch [95].

Group 1 - Recent developments indicate that many US Treasury bond funds have lifted their quotas, prompting interest in these funds [1][2] - Various funds are categorized based on their duration, with specific funds targeting different maturity ranges such as "7-10 year US Treasury ETF" and "1-3 year US Treasury ETF" [1][2][3][4] Group 2 - The funds include ICBC and Changxin, which are aligned with the "7-10 year US Treasury ETF," and others like Huatai-PB and Fuguo, which align with the "3-7 year US Treasury ETF" [1][2][19] - The E Fund and Morgan Stanley funds focus on shorter durations, targeting the "1-3 year US Treasury ETF" and "1 year US Treasury ETF" respectively [3][4][19] Group 3 - The article provides a detailed breakdown of the holdings within these funds, highlighting the types of US Treasury bonds they invest in, such as long-term, short-term, and inflation-protected bonds [6][7][8] - For instance, the Morgan Stanley fund primarily holds short-term US Treasury bonds, while the E Fund has a more diversified portfolio including corporate bonds [9][10][12] Group 4 - Performance comparisons show that the E Fund's volatility aligns closely with the "1-3 year US Treasury ETF," while the Morgan Stanley fund exhibits lower volatility, indicating a more conservative approach [18][12] - Long-term funds like ICBC Global US Dollar Bond and Changxin Global Bond have significant allocations to long-term US Treasury bonds, with ICBC holding 85.91% in its top five bonds [19][20][21][24] Group 5 - The article concludes with a summary table of various funds, detailing their codes, managers, asset sizes, and expected returns, emphasizing the importance of monitoring these funds closely due to their active management nature [51][52]