The United States Treasury Department released its international capital flows report for March on Monday, which shows that foreign investors' holdings of US debts fell for the third straight month, and seven of the top eight US creditors in particular reduced their holdings.

At the same time, the net purchase of US debts by foreign investors hit a record $118.87 billion because of a rise in the yields of US debts.

If the sell-off of US debts continues alongside the expansion of its bonds issuance, that will certainly destabilize the US national debt market. According to the US Federal Reserve's estimates, this round of inflation will peak by year-end, and in order to realize employment goals, it would become more tolerant of periodic inflation. That means the Federal Reserve will have to face the pressures of asset prices inflation and the risks of imbalances caused by high-handed economic policies.

At present, the market and the Federal Reserve have different perceptions about inflation. The price fluctuation pressure of financial assets, including US debts, has not abated at all, and the cost for maintaining financial market stability is actually rising. If such problems seriously affect central banks' ability to implement policies, it will have a direct impact on global trust in the US dollar.

Even if there is no immediate force to challenge the US global hegemony, the impact of stagflation-like risks would be enormous. Increased net buying of US debts by overseas investors in March is no reason to underestimate these risks. At a time when the novel coronavirus is raging across the world and few countries have managed relatively healthy economic recovery, the relative attractiveness of US bonds to investors due to rising yields is actually the result of competitions among "rotten apples".

If the US economic recovery is not as good as expected, investors may be forced to look for alternative investments. For the holders of US debts, win-win with the US is the best result.

There are good reasons for the US to wake up to the fact that a benign external environment will do more good than harm to its economic recovery. To have a stable interest rate environment, the US needs to promote partnerships with China and others. It is of great significance to the US and the rest of the world to stabilize the global economic recovery expectations and realize the relative stability of US debt and dollar. Cooperation with China is the best choice.