The tariff war has finally triggered a tsunami of US debt, with large-scale selling of US Treasury bonds. Once these bonds are sold, their value is fixed. Let me give you an example: a $100 US Treasury bond is sold at $100 with the agreement that it can be exchanged for $105 after one year, which is determined when this bond is first issued.

Now, if someone massively sells $100 worth of US Treasury bonds and people lose confidence in them, their price will drop. For instance, someone else may sell me a $100 bond for $95. After I buy this bond for $95, what is my yield? It's calculated as 105/95 = 1.105, meaning my yield reaches 10.5%.

Therefore, large-scale selling of US Treasury bonds leads to a decrease in bond prices and an increase in yields. Now, the reason for the current selling of US Treasury bonds is that Japan can no longer hold on. Japan holds the most US Treasury bonds globally, amounting to $1 trillion. Japanese banks have been severely affected by the decline in US stocks and must sell US Treasury bonds to cover huge losses.

Although the Japanese finance minister and the US have clearly assured that Japan will not sell US Treasury bonds, official statements may say no, but the public sector will not stop taking action. As the largest overseas holder of US Treasury bonds (holding about $1.27 trillion), various Japanese institutions holding US Treasury bonds are selling them in a frenzy. At one o'clock in the morning, Japanese institutions still have $20 billion worth of US Treasury bonds listed for sale.

As a transit trade country, a sharp devaluation of the yen will increase the cost of importing raw materials and reduce the export price, which is like cutting its own flesh. Therefore, Japan must maintain the exchange rate between 130-150. For a transit trade country, both a sharp rise and fall in exchange rates are dangerous; stability is required. The Bank of Japan currently has very little USD, so it can only rely on selling US Treasury bonds to obtain more USD. In future currency wars, it needs to protect the value of the yen.

What Trump is most worried about now is that China will step in and sell US Treasury bonds. Although most of the US Treasury bonds are held domestically, large-scale selling by foreign governments themselves sends a strong signal, and it is an important attitude that reflects the trust a country has in the US economy and the dollar, and also symbolizes the relationship between two countries. If they think well of you, they will continue to hold them; if they think badly of you, they will sell. Conversely, massive selling will make the market believe that your trust in the dollar is starting to wane.

Because we know that holders of the bond market actually have an invisible veto power over Trump's tariff policies. When yields spike, it sends a signal to Trump: aggressive tariff policies may trigger fiscal and economic turmoil, forcing him to reconsider his plans.

CNN commented that when the stock market crashes and trillions of dollars in market value disappear, Trump remains unfazed, shrugging it off; but when the bond market panics, he blinks and has to take action.

Trump cannot afford not to act urgently. Now, the US has $36 trillion in Treasury bonds. If interest rates remain at 4.5%, the US government's annual interest payments alone would account for a quarter of fiscal revenue; if interest rates soar, this is a significant loss that even Musk's layoffs cannot compensate for, and there is a possibility that the US could go bankrupt.

Trump himself admits that the bond market is becoming "unsettling." That is, market fluctuations in the bond market are the last straw that forces Trump to change. This is why Trump announced a 90-day moratorium on implementing reciprocal tariffs.

However, US media is more concerned that Trump's tariffs against China have not stopped, and the intensification of the confrontation between the two sides may lead to China selling large amounts of US Treasury bonds. If China were to sell US Treasury bonds, it would have a major impact on the US financial market, causing Wall Street turmoil.

Given this, then why hasn't China sold US Treasury bonds yet?

The essence of the dollar is a credit system built on hegemony. The credit foundation of the dollar is not industrial and agricultural output, nor is it America's past financial credibility. America's own credibility is not good enough to support the dollar. If other currencies had done what the US did in abandoning the gold standard, they would have collapsed immediately, but the dollar not only continues to exist but becomes increasingly powerful.

Why is that? The reason is simple: it's not that the world trusts the dollar, but that the world has no other choice. Besides the dollar, you have no other options. So you have to choose the dollar.

Therefore, if there is no widely recognized currency to replace the dollar in the world, a large-scale sell-off of US Treasury bonds, once triggering the collapse of the dollar system, will affect the entire global economic market. So China also needs to consider the impact.

But if Trump continues to pressure China relentlessly, China doesn't mind selling US Treasury bonds to add another layer of fire to the already crisis-ridden US.

For this reason, US media also issued warnings. If China, one of the largest creditors of the US, follows Japan in selling US Treasury bonds, the international financial system will陷入 great instability, and the dollar system may collapse, forcing the US military to reshape global hegemony through hot wars.

The decision-making of the Trump administration exposes a fatal misunderstanding of modern financial markets. They fantasize about reshaping supply chains through tariff wars but underestimate the high interconnectedness of global capital markets. When the spread between the 10-year US Treasury note and interest rate swaps narrows to -58 basis points, indicating targeted selling of specific Treasury notes, the message from the market is clear: investors no longer see US Treasuries as absolutely safe assets.

Meanwhile, Musk's public rift with Trump's trade advisor Navarro exposes structural contradictions within the ruling group—tech capital needs globalization, while political capital is obsessed with populist narratives. This division materializes in financial markets as a dual stock-bond crash: the Dow Jones Industrial Average plummeted 3,200 points in a single week, and the US Treasury yield curve inverted the most in 20 years, forming a "death cross" where inflation expectations push short-term rates higher while recession fears pull long-term rates lower.

Trump may have temporarily delayed the collapse of US Treasury bonds with a 90-day reprieve period, but the cracks in the dollar's credibility cannot be mended.

Original source: https://www.toutiao.com/article/7492089489523884582/

Disclaimer: The article represents the views of the author. You can express your attitude by clicking the "Like" or "Dislike" button below.