The U.S. treasury dumpsters
Hello steemian traders! Today I'm writing a different post. It's something that I'm not going to write very often, but if it's relevant for equity traders I'll talk about it.
Before reading this post it's important to understand the fact that selling large quantities of U.S. treasuries, with demand being equal, will create a downard pressure on the price of treasuries. Thus the interest rates will increase and usually that affects the stock market.
As I said in my previous post, countries all around the world are dumping U.S. Debt. Although the major concern comes from the two biggest foreign holders of treasuries. China owns an astonishing 56% of U.S. Debt and Japan owns 20% (Percentage of foreign holders). The problem comes from the cooperation between these two countries. Japan dumped $5 Billion of U.S. Debt to acumulate yuans, through a recent $200 Billion Swap with China, and increase their gold reserves, just like other countries. China is also expanding its Gold Reserves. Although China's intentions are different: they want to 'fire back' U.S. sanctions by selling U.S. Debt.
If China continues to dump treasuries it will be more expensive for american individuals and corporations to borrow, which will create a slowdown on U.S. economy and probably trigger a new crisis (image below). Also, don't forget the fact that other bondholders might panick and sell their treasury holdings.
Final note:
If China sells all their holdings like Russia did, they'll probably incur in a loss, due to their large position and low demand. So, this is very unlikely to happen.
If you want to learn more about this topic I reccomend you to watch these videos:
I don't own any securities mentioned above. Read my Disclosure.
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