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U.S. Braces for a Deeper Bond Sell-Off
Washington is bracing for impact. If there was a single factor that forced Trump to pause tariffs, it was the bond market. Global retaliation, combined with investor fear, sent shockwaves through U.S. markets. The sell-off highlighted the dangerous path protectionism could lead us down.
If the U.S. moves aggressively toward protectionism, foreign buyers have little incentive to hold U.S. debt. Domestic demand would fall, production costs would rise, and U.S. exports would become less competitive. That spells lower global revenues and, in turn, diminished confidence in U.S. Treasuries.
This triggered a historic bond rout. Yields on the 10-year Treasury—the benchmark for everything from mortgages to corporate loans—surged past 4.5%, briefly exceeding that level. It was the worst bond meltdown since 9/11 and the collapse of Long-Term Capital Management. Borrowing costs have jumped across the board. Whether you're a homeowner or a business, you're now paying more to borrow.
Trump understood the stakes—and that's why he paused the tariffs for 90 days. Investors were in full revolt. If the U.S. alienates global trade partners, demand for dollars drops, and with it, the appeal of U.S. debt.
Who dumped U.S. bonds last week?
Speculation is swirling, and identifying the source is vital. The White House—especially Treasury Secretary Scott Bessent—is in panic mode. When asked directly whether China was behind the sell-off, the administration gave no confirmation, though it acknowledged that Bessent is monitoring the situation closely.
Foreign holders own nearly $9 trillion in U.S. debt, 80% of which are long-term Treasuries—those crucial 10-to-30-year bonds that directly affect real borrowing costs in the economy. Even if the Fed slashed short-term rates tomorrow, a spike in long-term yields to 5% would still choke economic activity. What truly matters is who controls these long-dated bonds—and whether they’re still willing to hold them.
If large foreign holders start dumping—especially in the middle of a tariff war—the U.S. government may have no choice but to intervene. That could mean Bessent calling on Jerome Powell and the Fed to step in and buy long-term bonds to stabilize the market.
This has happened before.
During the 2020 pandemic, the Fed flooded the market with $1.6 trillion in Treasury purchases after a $500 billion hedge fund unwind caused short-term corporate borrowing rates to skyrocket. That move kept business credit markets from freezing—and prevented a broader economic collapse.
But this time is different. If Trump ends the tariff pause and the sell-off accelerates, the Fed may be cornered. It can’t afford to print money the way it did in 2020. Trust in the dollar is already eroding, and a fresh wave of QE would only deepen the crisis.
There’s growing chatter that Japan may have been the seller—not China. While negotiations were ongoing, Japan allegedly began dumping Treasuries due to growing unease about the U.S. as a reliable economic partner. According to sources at major investment firms, Japan viewed the U.S. outlook as unstable and acted accordingly. But this selling isn't likely to be limited to Japan.
The euro has surged against the dollar in recent weeks—a clear signal that capital is flowing out of the U.S. If you hold euros, that money needs to go somewhere—and increasingly, it’s heading into German bonds. The spread between U.S. and German 10-year yields has widened sharply, showing that Treasuries are losing value relative to Bunds.
Germany, now moving toward a war-time economic posture, is preparing to issue over a trillion euros in debt in the coming years. That’s a major new competitor to U.S. Treasuries. Global investors now have alternatives, and many appear to be making the shift.
So who’s dumping U.S. bonds?
The evidence points to Japan—and possibly China—quietly exiting long-term Treasuries in favor of European assets. China’s holdings have already shrunk to around $750 billion, a far cry from their peak. Meanwhile, the sell-off continues, and the ripple effects are spreading.
The U.S. bond market is flashing red—and if policymakers don’t act decisively, the consequences could be swift and severe.
U.S. Reverses Critical China Tariffs as Financial Pressure Mounts
China officially holds around $750 billion in U.S. Treasuries—but the real number is much higher. Add Hong Kong’s holdings and other agency debt, and China’s exposure is closer to $1 trillion. Even more concerning, Beijing is believed to hold an additional $300 billion in Treasuries through Belgian custodial accounts. That means China could be quietly unloading bonds in Europe to shake confidence in the U.S. market—an indirect financial strike aimed squarely at Treasury Secretary Scott Bessent.
Whether or not it’s confirmed, the threat is real. China still controls over $1.5 trillion in U.S. securities—a financial nuke that could be deployed if the trade war escalates. A large-scale liquidation would destabilize markets at a highly vulnerable moment, likely forcing Trump into another tariff reversal just to prevent a broader global selloff.
And that’s exactly what’s happening now.
Fresh off a prior policy U-turn, the White House has once again backpedaled—this time reversing key tariffs on Chinese imports. Less than five days after tough talk on "reciprocal tariffs," Trump granted sweeping exemptions for core Chinese products, including smartphones, computers, and electronics.
The punitive 25% tariff has now collapsed to 0% on these items. That’s not just a walk-back—it’s a direct admission that the U.S. consumer is in serious trouble, and domestic manufacturing isn’t ready to fill the gap.
The truth? The U.S. simply doesn’t have the capacity to produce these high-tech goods at scale. The exclusions cover everything from smartphones and laptops to hard drives, processors, and memory chips. These are the very building blocks of modern tech—and the U.S. relies heavily on Chinese factories to make them.
One of the biggest winners from this exemption? Apple. With the tariffs lifted, Apple can continue manufacturing iPhones in China and shipping them back to U.S. consumers tariff-free. Expect a sharp rally in Apple stock on Monday. Tim Cook likely fought tooth and nail for this change—because without it, an iPhone could've cost Americans over $5,000.
This isn't about protecting jobs anymore—it's about protecting the consumer from collapse. More than 70% of smartphones entering the U.S. come from Chinese suppliers. Designed in California, made in Shenzhen—that’s the model today, and likely tomorrow as well.
The reversal underscores a broader truth: American consumers are at their breaking point. The latest sentiment numbers show a collapse in confidence, with consumer outlook falling to the second-lowest level on record—only rivaled by the 1970s. Inflation expectations have surged to a shocking 6.7% over the next 12 months. If Trump can’t get that number down, a dramatic cutback in consumer spending could trigger a confirmed U.S. recession by June or July.
People are scared to spend—especially on imports from China, which make up a huge part of household budgets. And with no viable alternatives for many products, we’re likely to see more exemptions in the near future. Medicine, headphones, computer components—anything Americans can’t easily replace will be next on the list.
And here’s the kicker: this is the second major policy reversal in a single week. Markets now know Trump can cave under pressure. This sets a precedent—once exemptions are granted, they’re hard to walk back without tanking the stock market, the bond market, and even the dollar.
Take a look at the top 10 imports from China last year: game consoles, PC monitors, smartphones, lithium batteries, and plastic products. Many are already exempt—or will be soon. The system is too entangled. The damage to the consumer is too great.
Was there ever a point to these tariffs? That’s the real question. Because walking them back now isn’t just a policy shift—it’s an economic necessity. And if you hold Chinese equities, expect a beautiful spike on Monday. How long it lasts is anyone’s guess. Trump could flip again just to make a point.
But for now, the White House has blinked—and the world knows it.
Desperate U-Turn Ahead: Consumers Are About to Force Trump’s Hand
While Wall Street gets all the headlines, the real power still lies with the U.S. consumer. If Americans stop spending, that single action can trigger a chain reaction—investors will begin dumping U.S. assets, yields will spike even higher, and the economic situation could become completely unsustainable.
Just look at the latest Michigan Consumer Sentiment Survey. Anxiety around inflation is exploding. Even during the depths of the 2020 pandemic, long-term inflation expectations were anchored around 3%—people believed the crisis would eventually pass. And it did. But as of April, that number has surged to 4.4% for the next 5 to 10 years.
Why? Because people are starting to realize that Trump may be dead serious about dragging this trade war out much longer than expected. Tariffs on China, and the broad-based punishments on global trade, are no longer seen as temporary. They're being baked into the economy as a structural feature, not a short-term glitch.
Consumers are catching on—and they're spooked. Prices are staying high. Supply chains are stressed. And that fear is real. It’s now driving the conversation more than any Fed speech or bond auction.
There’s a high probability we’ll see more backtracking from the White House in the next month or two. If the recession fears continue building—and if bond market instability worsens—it may become politically and economically impossible to keep the tariffs in place.
In the end, it won’t be foreign governments or Wall Street insiders that force a change—it’ll be American households. The pressure from within may force Trump to abandon this trade war, whether he wants to or not.
So the real questions now are:
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Is China preparing for a major Treasury dump?
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Will Trump hand out even more exemptions to Chinese imports?
Drop your thoughts in the comments—I want to hear what you’re seeing out there.
Disclaimer: I want to make it clear that I am not a financial advisor, and nothing I say is intended to be a recommendation to buy or sell any financial instrument. Additionally, it's important to remember that there are no guarantees or certainties in trading or investing, and you should never invest money that you can't afford to lose.
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