First of all, the reverse of this situation (buying up lots of Treasury notes) is the basis for the Fed's "Quantitative Easing" policy, which was in place for m

First of all, the reverse of this situation (buying up lots of Treasury notes) is the basis for the Fed's "Quantitative Easing" policy, which was in place for most of the past decade and is credited with holding down US interest rates. So, government economists clearly believe that the price of these notes has a downstream impact on interest rates. Second, the China sale is not "artificially" impacting bond prices, any more than I'm artificially impacting the price of avocados if I start buying all of them. As long as the price is a fair market price, then it's by definition not artificial, because everyone is participating by their own free will. Third, the reasoning for this impacting overall interest rates is that debt is a commodity. There is currently a balance in the market between investment in, for example, Treasury bonds and mortgage-backed securities that takes into account many factors such as yield, perceived risk, liquidity, etc. If Treasury notes suddenly become cheaper and offer a higher yield, then some money that would have gone into new mortgages will instead go into Treasuries. With the same number of borrowers competing for less money for home loans, the cost of that money (the interest rate) will go up. Again, the key point is that the impact on Treasury rates is not artificial, it's a real consequence of the sell-off of China's holdings. One last analogy -- if I dump millions of gallons of water "artificially" into a reservoir, the river that it feeds will flood for real. It would be pointless for the people downstream to argue that the flood is artificial.