To The Moon

China’s selling of U.S. Treasury securities has been a gradual process, driven by a mix of economic strategy and geopolitical considerations. The implications ripple across markets and global finance, but the situation is nuanced—China isn’t “dumping” bonds in a panic, nor is it likely to trigger a crisis single-handedly. Here’s the breakdown:

Implications of China Selling U.S. Treasuries

Higher U.S. Interest Rates: When China sells Treasuries, it increases the supply of bonds in the market. Basic supply-demand dynamics suggest this could push bond prices down, which means yields (interest rates) go up. Higher yields raise borrowing costs for the U.S. government, businesses, and consumers. For example, mortgage rates, tied loosely to 10-year Treasury yields, could climb, cooling the housing market.

Dollar Dynamics: Selling Treasuries means China is swapping dollar-denominated assets for something else—possibly yuan, gold, or other currencies. This could put downward pressure on the dollar if done in large volumes, though China’s central bank often manages its currency to avoid sharp swings. A weaker dollar might boost U.S. exports but could also stoke inflation by making imports pricier.

Market Volatility: Large-scale sales, especially if poorly timed, could spook bond markets. Thin liquidity during certain trading hours (like Asian market sessions) might amplify yield spikes. However, the U.S. Treasury market is deep and liquid, and other buyers—like Japan, domestic investors, or the Federal Reserve—could step in to stabilize things.

Geopolitical Leverage: Some see China’s sales as a response to trade tensions or tariffs. By reducing reliance on U.S. debt, China might be signaling a shift toward financial independence or hedging against potential sanctions. But this cuts both ways—selling too aggressively could devalue China’s remaining holdings or disrupt its own economic stability.

Global Economic Shifts: China’s moves feed into broader trends like de-dollarization. By diversifying into gold or other assets, China could be preparing for a world where the dollar’s dominance wanes. This doesn’t mean the dollar’s reign is over—its status as the world’s reserve currency is sticky—but it’s a slow erosion of influence.

How China Is Selling U.S. Treasuries

China’s approach isn’t a fire sale; it’s more like a controlled unwind. Here’s how it’s happening:

Gradual Reduction: China’s holdings have dropped from a peak of $1.3 trillion in 2013 to around $760 billion by early 2025. This isn’t a sudden dump—think of it as letting bonds mature without reinvesting or selectively selling in secondary markets. For instance, in 2024, China offloaded about $53 billion in Treasuries and agency bonds in one quarter alone, but this was part of a years-long trend.

Diversifying Reserves: China’s central bank is reallocating its foreign exchange reserves. Instead of piling into Treasuries, it’s buying gold (China was the largest gold buyer in 2022-2024), euro-denominated assets, or even U.S. agency bonds (like those backed by Fannie Mae), which offer slightly higher yields. This diversification reduces exposure to any single asset class.

Supporting the Yuan: When China sells Treasuries, it often uses the dollars to buy yuan, propping up its currency’s value. This is especially relevant when trade surpluses flood China with dollars, or when tariffs threaten export competitiveness. It’s less about attacking the U.S. and more about domestic stability.

Using Offshore Custodians: China sometimes holds Treasuries through third parties like Belgium’s Euroclear, which obscures the exact scale of its sales. This makes it harder to pin down whether China is actively selling or just shifting assets around. For example, Belgium sold $22 billion in Treasuries in early 2024, and some analysts suspect this was on China’s behalf.

Responding to Trade Tensions: Recent sales have coincided with U.S. tariffs, like the 125% levies on Chinese goods in 2025. While not explicitly retaliatory, the timing suggests China might be adjusting its portfolio to mitigate risks tied to deteriorating U.S.-China relations.

Why It’s Not a Doomsday Scenario

China can’t just “weaponize” its Treasuries without shooting itself in the foot. Selling too fast would tank the value of its own holdings, disrupt global markets (where China has stakes), and leave it with dollars it needs to reinvest elsewhere. The U.S. market is also resilient—when China sold $180 billion in 2015, the economy barely blinked. The Federal Reserve could step in, and global demand for Treasuries (as a safe asset) remains strong.

On the flip side, China’s not powerless. Even modest sales can nudge yields up, raising U.S. borrowing costs at a time when the deficit is ballooning. It’s a subtle pressure point, not a knockout punch.

The Bigger Picture

China’s selling reflects a strategic pivot—less reliance on the dollar, more focus on self-sufficiency. But it’s also trapped in a paradox: its export-driven economy needs dollars, and Treasuries are still the safest place to park them. For the U.S., the real risk isn’t China’s sales alone but the broader trend of foreign holders (like Japan or BRICS nations) diversifying away from Treasuries. That could slowly chip away at America’s ability to borrow cheaply.

In short, China’s selling is a calculated move with real but limited consequences. It’s not about crashing the U.S. economy—it’s about China playing a longer game.