With US-China trade tensions taking center stage, we guess it was only a matter of time before headlines started pouncing on a corollary: the potential for China to start dumping its holdings of US Treasury bonds as part of its efforts. Not necessarily to hit Uncle Sam where it (supposedly) hurts, but to offset tariffs' impact on the yuan, which is unofficially pegged to the dollar. Conventional wisdom says tariffs will weaken the yuan and strengthen the dollar—markets' way of easing the tariffs' impact on US consumers—potentially goading Chinese counteraction. Accordingly, headlines are starting to warn about the risk of China's sales making US Treasury markets go haywire—an age-old false fear.
We have written about this numerous times and so won't belabor the point here—you can check out our past analysis if you prefer more elegant prose. The numbers may be different today, but the reasoning still applies. Here, let us just tackle the issue in handy Q&A bites.
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