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Anthony Rowley

US President Donald Trump’s thinly veiled threat to hold a gun to the heads of countries that refuse to maintain or expand their holdings of US Treasury bonds would be absurd coming from anyone other than the highly erratic US president. Nevertheless, it must be taken seriously by markets.
Questioned about Treasury Secretary Scott Bessent’s recent efforts to support the US government bond markets through official buy-backs, Trump said that this tactic represents just one possible type of market intervention.
“We have many types of intervention. That’s one. The ultimate intervention is our military. And, uh, if we have to use that, we will,” he said.
Making these kinds of threats could set off a wave of selling US Treasuries among the ranks of US creditors around the world. In turn, this would destabilise global bond markets, as well as the markets for equities and other financial assets.
The US dollar is still the world’s primary reserve currency, albeit to an increasingly lesser extent as other potential candidates – the euro, yen and yuan – become more widely used. Most likely it will be a combination of all three currencies that reshapes the global landscape, seeing that Trump’s problem-riddled administration has exposed the folly of relying too heavily upon any single country or currency.
Trump’s behaviour is highway robbery on a grand scale. Even if the highwayman in question is possibly becoming less of a terrifying figure amid speculation of his willingness to step down in favour of US Vice-President J.D. Vance as difficult midterm elections loom for the Republicans. Even if Trump does step aside, though, his administration’s policies – and not just the economic and financial ones – will live on in his absence.


The US government bond market is the biggest in the world. At least for now, it serves as the biggest pool of global financial liquidity underpinning international financial transactions. No one wants it drained by a sudden mass sell-off, but it might already be too late to stem that tide.
Japan is the biggest foreign holder of US government bonds, with more than US$1.1 trillion worth as of June. The United Kingdom is second with almost US$940 billion, followed by China (US$633 billion), Belgium (US$482 billion) and Canada (US$459 billion). How might these countries react to the rapidly diminishing value of the world’s leading transaction and reserve currency?
As the single biggest holder of US sovereign debt, would Japan join or even lead the charge for such securities? Japan does have a long-standing relationship with the US built on their military alliance. Times change, though, and Trump has been pushing Tokyo hard to both pay the US more for its security umbrella and take up more of the burden for its own defence, all the while imposing tariffs on Japanese goods and other barriers to trade.
Meanwhile, Japanese Prime Minister Sanae Takaichi’s stimulus plan and other domestic spending priorities are adding up quickly. Liquidating some US bond holdings could be one way of closing the fiscal gap. Japan’s domestic bond market is big and liquid enough to absorb reflows of funds from the United States into it, as well as to absorb inflows from countries exiting the US market.
The same goes for China, where new inflows of fugitive international funds from out of the US could easily be absorbed. China has long resisted fully opening up its capital markets to international flows, but again, the world is changing.




Having the US dollar serve as the world’s principal reserve currency confers strong international leverage upon the US; Beijing is aware of that. The yuan having a share of that exorbitant privilege – along with others, such as the euro and the yen – could well prove to be useful.
The European Union has long striven to achieve a common currency on the continent. Towards that end, it is trying to more closely integrate economic and financial policies. In Canada’s case, there is certainly no love lost between Canadian Prime Minister Mark Carney and Trump.
All of this adds up to the growing feasibility of an alliance among key powers outside the US to cautiously accelerate their sales of US government bonds and – for some – secure their share of the privilege that comes with international reserve currency status. Trump might have shot himself in the foot, also hitting the US dollar in the process.
The message to investors at large is to continue diversifying out of US dollar assets in general – always with an eye to developments in the US – and into the key currencies mentioned above. That is the way of the future, and it should lead to a better balanced world financial order over time.


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United States

Trump’s Treasury threat will only accelerate the dollar’s decline

US President Donald Trump speaks during an American Mining Industry Roundtable at the State Department in Washington on August 7. Photo: EPA

As Bessent addresses G20 peers, analysts warn benchmark bond yields near ‘concern zone’

US Treasury Secretary Scott Bessent addresses a news conference on Tuesday after the G20 financial meetings in Asheville, North Carolina. Photo: AFP

G20 finance ministers and central bankers at Tuesday’s plenary session on sovereign debt in Asheville. Photo: AP

US Treasury’s Bessent calls on Japan to boost yen through rate increases

People walk past a foreign currency indicator board showing the rate of the US dollar against the Japanese yen in Tokyo on August 3. Photo: EPA

A man shops at a grocery store in Tokyo’s Okubo district on August 23. Photo: AFP

A notepad in front of US Secretary of the Treasury Scott Bessent reads “To Do Buy Japanese Yen $5-10 bil” as he takes part in a cabinet meeting at Camp David on July 31. Photo: Reuters

China joins global sell-off of US Treasuries in March as Iran war prompts panic

Mainland Chinese investors are among seven of the top 10 foreign holders to cut their exposure to US government debt, triggered by uncertainty around the war in Iran. Photo: AFP

Opinion

World Opinion

Economy

Global Economy

While loose talk over bond market interventions may not trigger an immediate sell-off, it will convince foreign creditors to keep trimming their Treasury exposure


While loose talk over bond market interventions may not trigger an immediate sell-off, it will convince foreign creditors to keep trimming their Treasury exposure.


Bonds

Currencies

Donald Trump

Macroscope

European Union

Japan

China

Expresses the views, ideas and conclusions of the author. (Eg. Enough of Crazy Rich Asians, think of crazy poor Hongkongers.)


Column

Trump’s Treasury threat will only accelerate the dollar’s decline

.css-1c6uqr6{color:inherit;font-weight:inherit;font-size:inherit;font-family:inherit;line-height:inherit;overflow-wrap:break-word;}While loose talk over bond market interventions may not trigger an immediate sell-off, it will convince foreign creditors to keep trimming their Treasury exposure

While loose talk over bond market interventions may not trigger an immediate sell-off, it will convince foreign creditors to keep trimming their Treasury exposure