I remember reading an article about the Federal Reserve studying the impact of China dumping US treasuries. The conclusion was the US treasury market was “deep” and could handle such selling.
In the short term, China selling would drive Treasuries lower and yields higher. But it wouldn’t last. In fact, such a scenario may prevent the Federal Reserve from raising rates 3 more times this year as some economists predict (because of GDP growth and low unemployment).
20 years ago I might have been nervous but our oil and gas production would see our currency through this. To hell with China and we will probably not have a better time to tell them so.
“In the short term, China selling would drive Treasuries lower and yields higher.”
That would essentially be China cutting off their own nose.
They hold $1.3 trillon in US debt.
If they tired to sell 20% of that, they’d lose 10% on what’s remaining. If they tried to sell 1/2...they’d lose at least 1/2 the value of what’s remaining.
But there would be no shortage of buyers in the mid-term.
“the impact of China dumping US treasuries.”
China only holds around 5-10% of the Treasuries outstanding (a bit over a trillion dollars) - far less than the Fed bought during their quantitative easing. The bottom line for us is that the Fed could buy any excess that the Chinese dump, keeping any serious interest rate disruption in check, and short-lived.
The Chinese however, need dollars to clear shipments at their ports, including oil and gas, on which they are heavily dependent. They can ill afford to not have large dollar accounts.
They have been drawing down their treasury account somewhat, because they needed the money to prop up their stock markets and currency. If they tried to sell a bunch at once though, they would be driving down prices as they were selling, getting paid less for each bond they dumped into their hole.
It would hurt them worse than us. Probably much worse.