The Wall Street Journal reports that the Chinese are the force behind the current drop in Treasury bond yields. They hold close to 11% of the overall Treasury market and have increased the holding at a faster pace lately. I have two observations.
1. We don't have to worry too much about whether the Chinese will "dump" the Treasuries and push up the interest rate as a consequence. They have very few choices. Their dollar assets must go somewhere. Even if they eventually dump the Treasuries, they still get dollars. Dollar assets still have to find a place to park.
2. I suspect the increase in Treasuries holding is part of Xi Jinping's power consolidation. Foreign assets controlled by the Chinese government but not in the form of cash or Treasuries are too much an incentive for the officials to get dirty. Make it simple to keep it clean.
The second point echoes what I always believe. China is about to have a big change. When a Chinese dynasty is about to end, there is always a strongman consolidating power and appearing to have the country under control. But that strongman most likely is the last emperor.