I'm saying bond prices would drop sharply if China tried to rapidly sell even 10% of its holdings.
When bond prices drop, US interest rates go up, which hurts the real US economy.
And when bond prices drop, that devalues the remaining 90% of China's holdings, hurting China too.
The Fed could stabilize the bond market by printing dollars to buy the bonds itself, but that would devalue the dollar and drive up inflation in the US. When China tries to repatriate that wealth, they must sell dollars and buy yuan, which would drive up the value of the yuan, driving up the cost of Chinese exports, hurting their manufacturing sector.
it doesn't sound like it from what you said. China appears to have the option to destroy the US economy by forfeiting much of the value of the US dollars they have, they don't have to buy yuan with it.
Both economies would suffer massive shockwaves, but the US has central bank tools to absorb the blow, while China destroys its own asset base with no way to recover the loss. They're not going to burn down their own house just to smoke out their neighbor.
Just Googling here: 10% of China's holdings would be $66B. Daily trading volume for US Treasuries is $1.2T.
The most the Fed has ever held on its balance sheet is $5.8T.
Maybe I missed a zero somewhere but China's sale of 10% of their holdings seems in isolation like an awfully manageable problem. A different discussion if there were a ton of other crazy stuff going on in the world economy and they just piled on, perhaps.
As someone who's very well informed on that corner of financial markets.. you're absolutely right. 66bn might cause some minor moves in yields but it's far from a disaster.
US 10y bond auctions are often >40bn in size, with shorter maturities well over that. The seller of this debt (China) wouldn't want to smash the market because they'd only be shooting themselves in the foot.
Point being that it's an easily digestible amount of debt.
As someone who's very well informed on that corner of financial markets, you probably realize that China controls much more than $660 billion of US Treasury securities.
I'm sure you also realize that when a large holder sells a significant stake of any asset, traders anticipate they will sell more in the future.
Example 1: Berkshire Hathaway selling $47 million of BYD and the market price dropping 8% the next day, wiping out $10 billion of market value.
Example 2: Musk selling 0.6% of his stake in Tesla, and the market price dropping 15% the next day, wiping out $187 billion in market value.
Example 3: UK government announcing a planned sale of 0.3% of above-ground gold, and the global gold price plunging 10% before the first auction.
As someone who's very well informed on that corner of financial markets, you probably realize that China controls much more than $660 billion of US Treasury securities.
How much do they control? Please cite your sources.
I can find some information about "shadow holdings" (exciting!) held in Luxembourg and Belgium [0] but I cannot imagine those treasuries would add up to a multiple of what's officially on the books and held by the Chinese government and Chinese companies. Interesting thought, though.
Comments
I'm saying bond prices would drop sharply if China tried to rapidly sell even 10% of its holdings.
When bond prices drop, US interest rates go up, which hurts the real US economy.
And when bond prices drop, that devalues the remaining 90% of China's holdings, hurting China too.
The Fed could stabilize the bond market by printing dollars to buy the bonds itself, but that would devalue the dollar and drive up inflation in the US. When China tries to repatriate that wealth, they must sell dollars and buy yuan, which would drive up the value of the yuan, driving up the cost of Chinese exports, hurting their manufacturing sector.
It's mutually assured destruction.
Both economies would suffer massive shockwaves, but the US has central bank tools to absorb the blow, while China destroys its own asset base with no way to recover the loss. They're not going to burn down their own house just to smoke out their neighbor.
Never say never.
Just Googling here: 10% of China's holdings would be $66B. Daily trading volume for US Treasuries is $1.2T.
The most the Fed has ever held on its balance sheet is $5.8T.
Maybe I missed a zero somewhere but China's sale of 10% of their holdings seems in isolation like an awfully manageable problem. A different discussion if there were a ton of other crazy stuff going on in the world economy and they just piled on, perhaps.
As someone who's very well informed on that corner of financial markets.. you're absolutely right. 66bn might cause some minor moves in yields but it's far from a disaster.
US 10y bond auctions are often >40bn in size, with shorter maturities well over that. The seller of this debt (China) wouldn't want to smash the market because they'd only be shooting themselves in the foot.
Point being that it's an easily digestible amount of debt.
As someone who's very well informed on that corner of financial markets, you probably realize that China controls much more than $660 billion of US Treasury securities.
I'm sure you also realize that when a large holder sells a significant stake of any asset, traders anticipate they will sell more in the future.
Example 1: Berkshire Hathaway selling $47 million of BYD and the market price dropping 8% the next day, wiping out $10 billion of market value.
Example 2: Musk selling 0.6% of his stake in Tesla, and the market price dropping 15% the next day, wiping out $187 billion in market value.
Example 3: UK government announcing a planned sale of 0.3% of above-ground gold, and the global gold price plunging 10% before the first auction.
How much do they control? Please cite your sources.
I can find some information about "shadow holdings" (exciting!) held in Luxembourg and Belgium [0] but I cannot imagine those treasuries would add up to a multiple of what's officially on the books and held by the Chinese government and Chinese companies. Interesting thought, though.
[0] https://www.cnbc.com/2026/05/19/central-banks-offload-us-tre...
Thank you, you've explained much better what I meant by "the call".