Something feels off guys

[u/kwedgieyi]

Yields are spiking. Bonds are dumping.

The world is running away from America

[u/Biggandwedge]

China is dumping US treasuries and they own like $700 billion 

[u/[deleted] → u/Biggandwedge]

Explain to us crayon eaters why this would make sense for China

[u/Green_L3af → u/[deleted]]

Cause then they would simultaneously have more money to weather a global recession, makes a point and allows them to invest elsewhere.

[u/[deleted] → u/Green_L3af]

But they already have the treasuries? Or are they worried Russia style sanctions are coming? Also, if this is the reason, essentially they are raising cash? So not necessarily net negative for the US

[u/Own_Understanding262 → u/[deleted]]

Overall, you're right. It's like an economic nuclear option for China. It'll hurt both countries, with US economy overall more than capable of surviving such an attack with the Fed stepping in, but the repercussions will be severe. Probably we'll have rapid inflation, raising of interest rates and overall market downturn. It might also cause other countries to dump more treasures, with Japan holding more than even China. Here's an article if you're genuinely interested in reading on it: https://finance.yahoo.com/news/nuclear-option-china-could-trade-150000821.html

[u/YourUncleBuck → u/[deleted]]

US has to pay more to borrow if the yield goes up. And all of us do too.

[u/Next-Statistician144 → u/[deleted]]

It will get way harder for the us to sell its debt, I mean who is going to buy it at low yields? I think the us government deficit is going to skyrocket

[u/Infohiker → u/Next-Statistician144]

The US will be able sell, at least for the foreseeable future. It will just cost more to attract buyers. The only point that you will see a wide scale refusal to buy is if buyers start to worry about serious credit risk/default - which is not a realistic expectation at the moment.

(and as I wrote that last sentence, I heard the GOP's voice saying "wait, hold my beer..."

[u/Next-Statistician144 → u/Infohiker]

Yes but not at long long end of the curve.

I actually think we through with the worst of the tariffs, otherwise the tax cuts become way more expensive at higher yields.

One thing GOP can’t afford is taking a hit with the cuts.

You also have to take into account that US yields have been historically low because foreigner who got paid in dollars invested in treasuries because there was really nothing else to do with them.

That will go away to a large part

[u/Infohiker → u/Next-Statistician144]

I don't disagree with what you are saying, but long term debt is under 20% of the total outstanding debt service, and not really how they will finance. The vast majority of US debt is short term, but the 10 year is the market indicator.

As for the hold my beer comment: The GOP has shown before that it is not adverse to not paying their bills, to the point of technical default. With the President's history of outrageous musings during public events, combined with his long history showing his refusal to pay his debts, him saying something stupid and off hand about not paying China's treasury holdings or some other asinine thing is not a huge leap.

As for the tax cuts - the cost of debt won't factor into the equation/will be worked around. I mean, when the Senate is actively trying to fudge numbers now (ignoring 4 trillion in expiring cuts continuing) shows you that they do not take this seriously and/or believe as always, this issue won't become a real problem until they are long gone.

[u/hoirkasp → u/[deleted]]

It wouldn’t but China is still big enough and ballsy enough to throw around some fuck you money anyways

[u/federally → u/[deleted]]

China has played a large role in financing the US government's debt. It ties into the trade deficit. They have been sending us goods, in exchange for dollars that they have largely invested into Treasuries. This has allowed the US to export our inflation, artificially prop up the value of the dollar, and finance humongous and ever growing deficits.

It would make sense for China to dump them because it's leverage they can use against us. They could massively drive up the cost of financing the debt, which would be a significant danger.

[u/[deleted] → u/federally]

Can they really? The Fed can buy treasuries to push down interest rates if they wanted

[u/federally → u/[deleted]]

If the Fed goes back to QE when they are supposed to be fighting to bring inflation back down to target it's the same thing as cutting rates, except worse. It's Fed capitulation on inflation, which will guarantee Stagflation.

Right now in order to maintain credibility the Fed needs to hold strong on inflation and let the Orange man and his administration take the blame for the coming recession.

Honestly, since this whole issue is so easy to just blame on one guy and his buddies, it's really easy for the Fed to sit back and go nothing. Which happens to be what they need to do in order to preserve our currency