China - U.S. Treasury Notes

[A HERETIC I AM]

2. Doubtful

China holds around $1.2 Trillion in Treasury paper. Roughly 5% or so.

Since these bonds trade “Over The Counter” and not on an exchange, they would likely sell in lots as opposed to all at once. If a large portion were to hit the market at once, you’re right, prices would fall but by how much is anyone’s guess.

The 30 year has a coupon of 2.88%. If the sale of a large lot affects yield of other bonds offered for sale, the interest cost to the Treasury of those bonds does not change. It only changes when the next auction is conducted and the coupon and price of the bonds is bid up or down.

You said it could force a market correction of up to 40%. That’s not likely.

The reason Yields are so low in the first place is because there is demand for these securities.

Not to mention that the premise of the OP is unlikely because China uses their Treasury holdings to peg the Yuan. Selling off that position would not help them, regardless of motive.