China has sold a sizable portion of its Treasury stockpile back in 2015-2016, when domestic growth was slowing and raising concerns around the health of the global economy.
For those who don’t know or don’t recall, Speculators shorted the yuan in anticipation that China’s excessive debt levels would force the second largest economy into an abrupt slowdown. To stem the yuan’s weakness, China sold close to $500 billion of U.S. government paper. Yep, HALF A TRILLION.
What was the effect then?
This failed to dent US Treasury prices. In the summer of 2016, appetite for haven assets pushed the 10-year note yield to a record low of 1.32%.
And if they do it again on a much larger scale, this would be akin to cutting your nose to spite your face. Why? because their reserve funds are the single largest holder of US debt.
THen what? Selling Treasurys would weaken the U.S. dollar against the yuan, preventing Beijing policy makers from offsetting the impact of tariffs through a weaker Chinese currency.
China really has few choices for foreign-exchange reserves other than Treasurys, which carry much higher returns than ultralow or negative-yielding government bond markets in Europe and Japan.
If China’s economy collapses, will American banks pay more than .03% on Savings Accounts? Asking for a friend. ;)
Thank You, President Trump, for pulling back the curtain on the many, MANY ways our Government Pukes have screwed things up for America during my lifetime.
MAGA! :)
Bingo! For China, there is no credible alternative to holding US Treasuries.