If China was to sell a significant share of U.S. Treasury Bonds, why would that cause interest rates to go up?

Answer 1

It would cause the value of the bonds to fall, because of so many on the market--but that doesn't necessarily make the general interest rates go up, there is potential for rates to go down, although yields on treasury bonds would rise.

Remember too, we are talking about interest rates that savings institutions PAY customers. There is a connection that the difference between what banks pay for money and what they charge for money, but that spread is not and rarely ever was completely static. There can be compression or expansion. If you go to the FDIC website you will see that this spread has been shrinking fairly often recently, as it has done several times before. So motion TENDS to make such changes, and will in places, but it is not a slam dunk that both interest rates (paid by banks and paid to banks) will necessarily go up because there suddenly is a glut of treasury bonds on the market.

Furthermore, story is that an investment company is being considered, and they will dole it out more gradually so that they can get the full value for their money. If they are smart, and they certainly can be, they will take advantage of market swings, selling when prices bump up and buying more when prices drop. So that COULD be a stabilizing thing ahead with China's treatment of US cash and debt instruments.

Answer 2

That would decrease the value of bonds and that makes rates go up. Rates go opposit to the value of bonds. Rates are now falling as the economy slows because investors are losing confidence in stocks that reflect the economy so bonds are going up in value. Would be great if China were to quit buying or holding bonds as then the govt would need to quit spending excessively, so hopefully they will dump bonds soon

Answer 3

Interest rate is a fiscal tool and money supply is a monitory too. They have negative correlation. When money supply goes up interest rate come down and vice versa. So if China sells it's t bills in the open market they will pull out that much of dollars from the Money supply circulating in the American economy this reduces the money supply and currency balances of the Economy triggering the interest rates to move up. Demand for money goes up raising interest rates.

Answer 4

Price and rates have an inverse relationship. When prices go down (discounted), rates go up. When prices go up (premium), rates go down.

If China, or anyone for that matter, sold a significant amount of bonds, the prices would decrease just like any other instrument. When the price decreases, the rate or yield increases.

Answer 5

permit's see, if China sells off the effect it has on the U. S. it somewhat is undesirable? Wait this could be good. How does China have any effect on the U. S. if it does not carry those loans? Hmmm what might the U. S. be doing if the jap held the loans and the U. S. did not owe China this money? i think of it could be in China's terrific pastime to hold onto as a lot of this money because it could desire to. there isn't that plenty distinction in what the chinese language carry as against what the jap carry. As for credit rankings, it replaced into released today that the U. S. and the united kingdom have not something to stress approximately as for his or her credit rankings. You ask what is going to u . s . of america do? My my, i assume they'll could desire to initiate residing interior their potential. the bigger question could be how might this result the exporting countries of the international? If the U. S. is the biggest importer of the international it would have some result on the exporters of the international. Hmmm, specific it would!

Answer 6

because the bond price will go down. so you pay less to but the bond and get the same div so the rate of return go up. OK

Answer 7

Example 1:
Imagine you are General Motors and you sell your cars for $9,999 USD and China buys 1,000,000 of them every year and never sells them.

One Day China decides to sell 100,000 General Motors cars.

Obviously you cannot sell your cars in $9,999 USD anymore.

You need to reduce the price to $8,999 to compete with them.

Example 2:
Imagine you are Citibank and you offer 5% and China has a trillion dollars in their bank account.

One Day China decides to take $100 billion from their bank account.

Obviously Citibank will be forced to offer other investors MORE MONEY to attract enough new customers to replace those $100 Billion.

If Citibank cannot find enough new customers then it will be forced to borrow money from Bank of America.

Answer 8

it's just a confidence thing.
when someone stops supporting your debt it makes other people worry about your ability to pay.
greater risk means higher interest rate.