China hasn’t weaponized Treasurys despite bond market volatility

Fresh bond market volatility stemming from the Trump administration’s fast-moving tariff policies isn’t lost on US Treasury Secretary Scott Bessent. And neither is the risk of China potentially using its robust Treasury pile to inflict economic pain on the US.

“We have a big toolkit. We do buybacks. I think if Treasurys hit a certain level or if the Federal Reserve believed that a foreign — I won’t call them an adversary — but a foreign rival were weaponizing the US government bond market or attempting to destabilize it for political gain, I am sure that we would do something in conjunction with each other, but we just haven’t seen that,” Bessent told Yahoo Finance on Tuesday in an exclusive interview.

While much attention has been focused on the sliding stock market this month, investing pros say it’s time to shift more focus to unusual activity in the bond market.

Of note is that as investors sold off stocks, bonds were unloaded as well. That’s despite Treasurys often being viewed as a place of safety during stock market turbulence. The 10-year Treasury yield has risen to 4.38%, sending mortgage rates above 7%. Just last week, as tariff concerns rippled through markets, the 10-year yield advanced 50 basis points — the most in more than two decades.

Read more: The latest news and updates on Trump’s tariffs

In mid-September 2024, the 10-year yield hit a low of about 3.62%.

The moves in the bond market are sending signals the US may have trouble paying its future debts and could soon fall into a recession.

Experts add that the rise in yields also expresses a lack of confidence in a good resolution to Trump’s trade wars and China possibly selling Treasurys. China is the second-largest holder of the bonds.

Bessent said it’s not in China’s best economic interests to sell.

“I could burn down my house if I had an argument with my spouse, but it’s not gonna do me very much. If they started selling Treasurys, they would, you know, they’d have an effect on the price,” he noted.

“But more importantly, they accumulate dollars, and what are they going to do with the dollars? So if they sell Treasurys, then they would have to buy RMBs, and it would strengthen their currency. And they’ve been doing just the opposite. They’ve had a weak RMB policy. So it really served no purpose for them to weaponize Treasurys.”

The increase in yields stems from daily uncertainty on the tariff front.

On April 9, the Trump administration announced a 90-day pause on all reciprocal tariffs, except China. The tariffs on one of the US’s most important trading partners now stand at 145% — a 125% reciprocal tariff and the 20% Trump previously levied.