Bessent warns China against bond dumping amid economic instability

On April 8, 2025, U.S. Treasury Secretary Scott Bessent appeared on FOX Business Network's 'Mornings with Maria,' discussing the current state of the U.S. Treasury bond market amid concerns over deleveraging. During his interview, Bessent indicated that he does not perceive any systemic issues within the bond market, attributing the recent volatility in Treasury yields to normal deleveraging processes rather than any core deficiencies in the market itself. He explained that large leveraged players in the market are currently experiencing losses, prompting a reduction in leverage, a phenomenon that he expects will ultimately lead to market stabilization and calming investor concerns. \n\nBessent also addressed the implications of China's bond-selling activities. He cautioned that if China—currently the second-largest foreign holder of U.S. Treasurys—decides to sell off these bonds to pressure U.S. financial markets, it could backfire against its own economic objectives. Selling off Treasurys could lead to a strengthening of the Chinese yuan, which would contradict China's strategy to maintain a weaker currency to enhance its export competitiveness. Bessent emphasized the contradictions present in China's approach, concluding that dumping Treasurys may ultimately hinder their goal of having the yuan become a viable reserve currency. \n\nThe bond market has seen fluctuating yields, with the 10-year Treasury yield rising and falling from approximately 4.2% to above 4.4% in recent weeks due to uncertainties surrounding U.S. trade policies and tariffs. As geopolitical tensions escalate, investors have become increasingly speculative, reacting to the Federal Reserve's decisions on interest rates and inflation expectations. Despite these fluctuations, Bessent maintained that the U.S. Treasury market remains fundamentally sound due to its high liquidity, backed by the U.S. government’s creditworthiness that reassures investors during times of market stress. \n\nIn broader economic observations, Bessent noted that the U.S. dollar has strengthened against the yuan but weakened against currencies like the euro and Japanese yen. He attributed these changes to varying economic conditions and policy adjustments within Europe and Japan, such as increased military spending in Europe and Japan's rising economic growth coupled with anticipated interest rate hikes. Bessent concluded with a reaffirmation of the U.S. government's commitment to a strong dollar policy as Washington navigates through the complexities of international trade and economic stability.