There is a relatively liquid market for bonds. Let's say I issue a bond today. I set the interest rate at 3% per year for 10 years. A lot of different people bu

There is a relatively liquid market for bonds. Let's say I issue a bond today. I set the interest rate at 3% per year for 10 years. A lot of different people buy those bonds (for ease of math, assume that an individual bond is $100). If they do nothing, every year that someone owns bond they'll receive $3, then at the end of ten years they get the extra $100 back. Let's say that one day later someone wants to sell all the bonds that they bought. Naturally more sellers than buyers for a market means that the price will drop. So the bond now costs $90 to buy. However it will still pay the (new) owner $3 per year and $100 back at the end, so it's effective rate of return is now above 3.33% [The actual rate is higher since you get more money back than the $90 you put in, but this is a good lower bound for the new rate of return]. Now I come back right after this price drop occurred and realize "Oh crap, I need to issue more bonds today!" If I try and set the same terms on the new bonds, nobody will buy them, since they could just buy the ones I issued in the secondary market and make more money for the same risk. As a result, I have to increase the interest rate I pay for future bonds I issue. Thus China selling bonds increases the long term interest rates. Note that it may not increase long term interest rates in the long term, though :-)