As trade tensions escalate between the U.S. and China, speculation is emerging that Beijing may be engaging in a significant sell-off of U.S. Treasuries. This chatter comes just hours before President Trump’s massive 104% tariff is poised to take effect at midnight, raising concerns about the ripple effects this could have on global financial markets.
Venture capitalist Chamath Palihapitiya, a well-known supporter of Trump, has been vocal about these developments. On Tuesday, he took to social media platform X to share insights from sources suggesting that China is selling off U.S. Treasuries to manipulate yields and alter the economic narrative ahead of upcoming Treasury auctions. “I’m hearing they are dumping UST to try and move rates to shift narrative and make our upcoming Treasury auctions more expensive,” Palihapitiya stated.
The financial implications are profound. Following this speculation, yields on pivotal U.S. Treasury securities saw noticeable increases today, with the five-year Treasury rising 2% to 3.918%, the 10-year climbing 3.2% to 4.291%, and the 30-year moving up by 3.6% to 4.762%. These rises indicate a shift in investor sentiment, further compounded by a downturn in stock markets. The S&P 500, after having shot up by 4% during the session, ultimately closed down 79 points, or 1.57%.
China’s holdings of U.S. Treasuries stood at $761 billion as of January, making it the second-largest foreign holder after Japan, which holds $1.08 trillion. The strategic timing of this Treasury sell-off could be linked to the looming tariffs, amidst heightened hostility between the two economic giants. The Trump administration has touted lower yields as a unique victory amidst tumultuous market conditions, and some analysts speculate that recent tariff actions may be part of a broader strategy to reduce yields on government debt, which is expected to mature or require refinancing in 2025.
Should yields remain elevated, the costs of mortgages and car payments could rise, stifling potential economic momentum at a time when recovery is critical. The backdrop of rising yields also provides a dismissive wave against the backdrop of market volatility; equities are reacting as uncertainty looms over the financial landscape.
Although the authenticity of these rumours regarding China’s actions remains unverified, Palihapitiya’s connection to Trump’s inner circle lends credence to the speculation. Further complicating matters, Chinese officials have vowed to “fight to the end” in response to the U.S. tariffs, and dumping Treasuries may be a tactical response in this escalating economic brinkmanship.