I didn't suggest they had no recourse, hell...they're doing it now;
The CME Group farm futures market sees soybean prices hit a 10-year low before trimming losses Monday.
Falling to $7.92 per bushel, the July soybean futures contract dropped to the lowest price for an active front-month contract in 10 years.
At the close, the July corn futures finished 4¼¢ higher at $3.56. Dec. corn futures closed 4¼¢ higher at $3.76¼.
July soybean futures ended 7¢ lower at $8.02¼. November soybean futures ended 6½¢ lower at $8.26¾.
The point I am trying to illustrate about their holdings in Treasury Bonds is that they hold a relatively small percentage of the whole, and if they did a selloff, I don't think your prediction of a 40% drop in the overall stock market would materialize, much less a massive spike in yields, that's all.
Another thing to consider is that they may very well have bonds that are paying 5 or 6% or more. The 30 year had a 5% coupon as late as 2007. That's $50,000 in annual interest payments for every million dollars face value of that paper. 30's sold today are paying 2.88%. There is nowhere in the world they can go to find government bonds with the reliability of a US Treasury that will pay anything CLOSE to what they're getting now. And again, they use our bonds to backstop the value of their currency, as I indicated above.
The Treasury Bond market is self correcting, to a degree. If yields rise quickly, buyers will flock in and pick up the slack.
Think of it this way;
Put cooking oil into a flat bottom frying pan. Take your spatula and from the center out, scrape away the oil. What happens? The surrounding oil fills in the void you just created. If the puddle is very thin, it takes a while, but it still fills in. If the puddle of oil is deep, it fills very quickly.
You are suggesting that China selling their $1.5 trillion into the market will have the effect of a scraping away a portion on a very thin puddle. That it will have a huge effect and take a while to recover.
I'm telling you the market for Treasuries is VERY deep.
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