But demand for the U.S.’ bonds is set to wane, Fink warned.
“At the same time, the global bond indexes are now including more Chinese debt, and next year one of the big indexes is going to include up to 6 percent Chinese debt, which reduces U.S. demand by 2.6 percent of their debt,” he said.
“So all of these things are playing out. We’re going to see some winners, we’re going to see some losers — but long term, the U.S. Treasury bid is a loser in this. Now maybe the expansion of the U.S. economy by more purchases will offset some of that, so we’ll see how it all plays out.”
The U.S. federal budget deficit rose in fiscal 2018 to $799 billion, the highest level in six years as spending climbed, the Trump administration said in October. Already at a six-year high, the deficit could reach $1 trillion by the end of 2019, according to the Committee for a Responsible Federal Budget.
A taper in Chinese purchases would come as the Federal Reserve unwinds the massive balance sheet it amassed after the financial crisis. The Fed is also expected to raise rates several times this year.
U.S. and Chinese negotiators are currently holding trade talks in a bid to resolve a dispute between the countries over trade practices which has led both sides to impose punitive tariffs on each other’s imports. Both sides are aiming to reach a deal before a March 1 deadline imposed by U.S. President Donald Trump, who has threatened to impose further tariffs on Chinese goods.
Looking ahead, Fink reiterated his worry: “In years, I do believe this Treasury volume is going to be a big issue in the coming future. Or put it another way — the deficits in the U.S. could become a bigger issue.”
CNBC’s
Fred Imbert
and
Bryan Borzykowski
contributed to this report
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