Trade War: China makes a move

Chapter 1: US Treasury Bonds

Imagine you are lending money to someone and you expect to get it back, however that someone will be US government and getting back will yield you interest rates.

Giving US government 100 dollars for 10 next years will yield you 5% interest rates yearly, which will account to 5$ a year + at the end of period getting 100 dollars back, which means it will add up to 5×10 + 100 = 150$ and you will come out in profit of 50$.

These are US Bonds that are being sold by US Treasury. Bonds will be 10 year, 20 year, 30 year or in short 10yr 20yr 30yr.

10 yr bonds will be considered short term, more stable towards interest rate shift, but less yields in terms of profit gain.

20 yr is the middle option and 30yr is opposite to 10yr.

People buy US Bonds = Bond price goes up, yield goes down, selling US Bonds = Bond price down, yield goes up.

Historically, when yields went up it was followed by recession.

So why am I teaching you about US Bonds?

You see, there is a problem for Donald J. Trump, debt on Bonds, which he will need to pay after cycle just happens to be this year June, where 25% of US debt will have to paid. He wanted to create uncertainty and crash economy so that J. Powell (Fed) would cut interest rates and that would lower their treasury yield rate.

Whenever stock market crashes people take their money out and look for other places to invest, US Bonds are one of those places, this time after market crashed yield rates were expected to go down, but it didn’t?

They were going up…

What likely happened? Well China might have used their economical card. You see, China actually had 800 billion $ in US Debt and they likely dumped it into US economy, so that treasury yield rates would, not go down.

As you can see refinancing is looming and so Trump wants quick crash, so the refinancing would be less painful for US Economy.

Chapter 2: China Move

China selling US Bonds might actually be why Trump response was harsh to China versus Pause tariffs one everybody else.

Let me explain hypothetically. Lets say China sold 600 Billion US$ so that Fed wins the do not cut - cut interest rates game in US economy and Trump tarnishes his image just a bit, it might pressure Donald Trump into rethinking his market tariff stance on China.

However if China did dump their Treasuries wouldn’t it be shown in strengthening their currency, they would need to reinvest somewhere else.

This is my own speculation, but I believe that China was dumping Treasuries and reinvesting them in Gold starting in Asia session of Wednesday.

The way market moved - looked like it was running on cheap algorithm 15 minute chart 50 SMA, protected orderflow…

Conclusion

China only owns 2% of US Debt, majority of US Treasuries are owed by Hedge funds.

I do believe that due to market volatility hedge funds were losing money and started to dump their Bonds together with China, which caused this last weeks pause on tariffs, China’s tariff to 125%, Gold rally and Trump starting to focus on China only.