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- A Chinese newspaper with links to Beijing suggests that China is studying the possibility of selling its holdings of US Treasury bonds.
- Market analysts believe that it is unlikely that China will act in such a way as to harm its own cash reserves, although they do not entirely reject the threat.
- The dumped treasures would likely increase the cost of borrowing for consumers and businesses in the United States, but it would also hurt the value of the Chinese treasury assets, which exceed $ 1 trillion.
The intensification of the trade war between the United States and China raises questions about other measures that Beijing could take beyond the rise in US tariffs. agricultural, electronic and other goods. An option, according to a Chinese newspaper closely linked to the Chinese government: Dump Treasures US.
Hu Xijin, editor of the Global Times, state-affiliated, reportedly said in a statement tweet On Monday, Chinese academics discuss ways to implement such a measure without harming the Chinese economy. In theory, this would lower Treasury prices and increase returns. US interest rates would rise, which would increase the costs to US consumers for issues such as mortgages and auto loans and businesses seeking to raise capital.
Yet, while China could for a long time offload some of its more than $ 1 trillion worth of US government bonds, which represents about 5% of the US debt stock, has long raised concern, experts believe that such a policy is not short term.
Greg McBride, Chief Financial Analyst at Bankrate, said that China's concerns that the dumping of US bonds would "be as damaging to them as anyone else", he said declared. Indeed, by lowering the price of Treasury securities, China would hurt the value of its own holdings of US bonds.
If China – which is turning around with Japan as the second largest holder of US debt – begins to dump, it would also destabilize the global stock market, "said Art Hogan, chief market strategist at National Securities Corp. will probably follow as US debt prices have slipped.
Like the Federal Reserve, China has already reduced its holdings of US Treasury bonds and could take a longer-term approach to continuing to do so, including reducing over a five-year period, said Hogan. But if China decided to get rid of its US Treasury holdings, say by the end of the year, the market "would probably collapse a bit," Hogan said.
In short, personal interest alone will likely deter China from taking such a spectacular step, Hogan told CBS MoneyWatch. "When they start selling US Treasury securities in the open market, they will hold a lot more than they can sell before they lower prices, and they do not want to hurt their cash reserves."
It would be "daring and aggressive" on the part of China, but it would be as if the Beijing government was banging in the face, added Hogan.
The price of 10-year Treasury bills rose on Monday, lowering yields by 2.45%, down 2.40% as investors sought safer assets. In contrast, US and global equities were hurt, with the S & P 500 and Dow indices each falling more than 2% on that day and Nasdaq by more than 3%.
The dumping of US debt by China "would likely cause a disruption of global equity markets and, ironically, an increase in the demand for protective assets," said Dan Heckman, National Investment Consultant at Wealth Management. Indeed, such an approach "would raise growing concern over the escalation of the trade war, which is not healthy for the business of growth and global business activities".
Tactical trading?
J.J. Kinahan, chief markets strategist at TD Ameritrade, said that China could consider getting rid of its treasury bonds could simply be part of the bargaining tactics while Beijing and Washington continue to boost trade.
Another market analyst agreed, but said any signal from Beijing should be taken seriously. "I think it's a classic: throw spaghetti on the wall to see if it sticks," said Kim Catechis, head of global emerging markets at Martin Currie. And, although Catechis is not convinced that Beijing intends to sell its stock of treasury bills, he believes the threat "will resonate and stimulate the White House".
The Trump administration should not view the possible scenario as an empty threat, as China, as an authoritarian state, is less subject to domestic politics than the United States, said Catechis.
Heckman added that if China decides to start selling US Treasury securities, it should reallocate this money elsewhere, and the options are almost nil. "Germany or Japan are the next safe haven, and if they go into these bond markets, they look for negative returns, depending on where they invest in the yield curve. . "
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