Threat Of China Dumping US Treasuries Not Viable – ZMR News Blog

Threat Of China Dumping US Treasuries Not Viable


The intensifying trade war between US and China is leading to speculations that China would be dumping about $1.12 trillion US treasuries. There is growing concern among the investors as to how China will be able to strike back against the US tariffs once their goods get exhausted.

However China surely has got other means such as blocking of its rare-earth mineral export, boycotting of iPhones as well as other US products and also by allowing a plunge in its currency. The recent tensions between the two nations have led to speculations that China would be slashing US debt holdings. The editor in chief of the Global Times of China, Hu Xijin, had said in his tweet that the academics of China are discussing about the dumping of US treasuries. This has all the more strengthened the speculations.

However it is said that Beijing will not be weaponing holdings of US debt as it would only have an adverse effect on them. It would result in the depletion of financial resources of China and also it is not sure if it would have the desired impact on the US. The head of institutional equity strategy at Stifel, Barry Banister, said that China would not be resorting to that as it would be a pointless move.

The China practice head at the Eurasia group, Hirson, said that the move of dumping treasuries would lead to a reduction in the foreign reserves of China and would affect its financial stability. China also has limitations as to what is to be done with its excess cash. Redistributing the cash into German and Japanese markets won’t work as the ten year bonds of both countries are negative currently as compared to the 2.2% positive yield from US treasuries. Yet another problem of dumping treasuries would be the worsening of the condition of present growth slowdown.

The US debt is considered to be one of the safest assets as there is great demand from foreign buyers, pension funds, large banks and big life insurance firms. Hirson said that China dumping the treasuries would create panic among the global markets but the US will be the least affected.

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