CHINA’S MIDNIGHT MOVE: DUMPING U.S. DEBT WHILE WALL STREET SLEEPS

[Bakhtawar04]

Amid growing trade tensions and tariff disagreements with the United States, recent market moves have generated heated debate regarding whether China is intentionally dumping U.S Treasury bonds, with holdings of between $759 and 760 billion as of early 2025, China is still the second-largest foreign investor of U.S debt, a significant decrease from over $1 trillion ten years ago, in tandem with increased tariff escalation and geopolitical tension between the two nations, analysts have seen exceptional volatility and steep increases in U.S Treasury yields, especially in the 10-year and 30-year bonds.

The timing of overnight spikes in Treasury yields during Asian trading hours, which coincide with Beijing business days, and the fact that yields have increased despite growing global economic uncertainty—a time when Treasuries typically attract safe-haven demand—support the theory put forth by some market strategists and analysts that China may be weaponizing its Treasury holdings by stealthily selling US debt to put economic pressure on the US government, the sell-off has contributed to a sharp increase in borrowing costs for the US government and increased volatility in financial markets, which could jeopard the US economic recovery and make policy decisions more difficult.

However, there is no definitive proof that China is the primary driver behind the recent Treasury market swings, some experts argue that if China were aggressively selling, short-term yields would be higher, which has not been consistently observed, others point to complex market dynamics, including leverage unwinds, basis trades, and reduced demand from other major foreign holders like Japan, as contributing factors, Japan’s private sector, particularly life insurance companies, may also be reducing exposure to U.S debt, adding to downward pressure on prices and upward pressure on yields.

China is in a difficult position because it might dump US Treasury bonds, selling off a lot of debt would hurt China's own holdings and make the yuan stronger, but it might also devalue the currency and undermine U.S economic stability, a higher yuan would damage China's export-driven economy and raise the cost of Chinese products, both of which Beijing is eager to prevent, as a result, rather than a sudden, massive sell-off, China's approach is cautious and may involve incremental decreases and diversification into other assets like European bonds.

The U.S. Federal Reserve can use quantitative easing, which entails buying government bonds to stabilize yields and promote economic growth, as one of its options to lessen the effects of foreign selling, but concerns about inflation and the erratic trade situation make it difficult for the Fed to take action, the Treasury sell-off was exacerbated by the ongoing tariff war that was started under former President Donald Trump, recent increases to 125% on Chinese goods have also increased market concern.

In conclusion, even if China's Treasury holdings have been gradually decreasing in recent years and current market activity indicates some selling, it is still unclear how much of the dollar is being purposefully dumped by China as a weapon in the tariff battle, other foreign investors actions and more general market technical issues further complicate the scenario, China's substantial sway over the US debt market and the possibility that geopolitical unrest would affect financial stability, however, continue to be major worries for both investors and political leaders.

 

[RClarkTaylor]

Amid growing trade tensions and tariff disagreements with the United States, recent market moves have generated heated debate regarding whether China is intentionally dumping U.S Treasury bonds, with holdings of between $759 and 760 billion as of early 2025, China is still the second-largest foreign investor of U.S debt, a significant decrease from over $1 trillion ten years ago, in tandem with increased tariff escalation and geopolitical tension between the two nations, analysts have seen exceptional volatility and steep increases in U.S Treasury yields, especially in the 10-year and 30-year bonds.

View attachment 1037836

The timing of overnight spikes in Treasury yields during Asian trading hours, which coincide with Beijing business days, and the fact that yields have increased despite growing global economic uncertainty—a time when Treasuries typically attract safe-haven demand—support the theory put forth by some market strategists and analysts that China may be weaponizing its Treasury holdings by stealthily selling US debt to put economic pressure on the US government, the sell-off has contributed to a sharp increase in borrowing costs for the US government and increased volatility in financial markets, which could jeopard the US economic recovery and make policy decisions more difficult.

However, there is no definitive proof that China is the primary driver behind the recent Treasury market swings, some experts argue that if China were aggressively selling, short-term yields would be higher, which has not been consistently observed, others point to complex market dynamics, including leverage unwinds, basis trades, and reduced demand from other major foreign holders like Japan, as contributing factors, Japan’s private sector, particularly life insurance companies, may also be reducing exposure to U.S debt, adding to downward pressure on prices and upward pressure on yields.

China is in a difficult position because it might dump US Treasury bonds, selling off a lot of debt would hurt China's own holdings and make the yuan stronger, but it might also devalue the currency and undermine U.S economic stability, a higher yuan would damage China's export-driven economy and raise the cost of Chinese products, both of which Beijing is eager to prevent, as a result, rather than a sudden, massive sell-off, China's approach is cautious and may involve incremental decreases and diversification into other assets like European bonds.

The U.S. Federal Reserve can use quantitative easing, which entails buying government bonds to stabilize yields and promote economic growth, as one of its options to lessen the effects of foreign selling, but concerns about inflation and the erratic trade situation make it difficult for the Fed to take action, the Treasury sell-off was exacerbated by the ongoing tariff war that was started under former President Donald Trump, recent increases to 125% on Chinese goods have also increased market concern.

In conclusion, even if China's Treasury holdings have been gradually decreasing in recent years and current market activity indicates some selling, it is still unclear how much of the dollar is being purposefully dumped by China as a weapon in the tariff battle, other foreign investors actions and more general market technical issues further complicate the scenario, China's substantial sway over the US debt market and the possibility that geopolitical unrest would affect financial stability, however, continue to be major worries for both investors and political leaders.

CHINA TO U.S TREASURY SEC: KEEP OUR NAME OUT OF YOUR MOUTH

Beijing lit up Scott Bessent after he called China’s Latin American deals “rapacious aid” that buries countries in debt.

The Chinese embassy in Argentina hit back hard, accusing the U.S of “malicious slander” and telling Washington to quit whining and mind its own business.

Translation: stop crying because we’re better at making friends in your backyard.