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4. Some are urging that China will try to dump the U.S. Treasuries as part of...

4. Some are urging that China will try to dump the U.S. Treasuries as part of the ongoing trade war. Although it is not likely to happen, what will be the impact on (1) the value of the U.S. dollar (appreciate or depreciate) and (2) the interest rate of the U.S. market (raise or drop) if China really sells a lot of Treasuries holding at a low price?

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Answer #1

1) The value of US dollar will depreciate in case of dumping of the US treasuries. When China sells U.S. bonds, it receives dollars in exchange. Then it would flood the foreign exchange with US dollars which, by rule of demand supply, increases the supply of US dollars, and thereby depreciate it's value.

2) As a result of such selling of US treasury bonds, it would  drive down the price of U.S. government bonds. And as we know that Price and yield are inversely related. So selling would have the effect of driving up interest rates on U.S. Treasuries. Therefore the interest rate will increase of US markets.

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