5 ms·

Don't they have large holdings of US treasury debt? Wouldn't a credit crunch in china pressure them to redeem their bonds, putting the US govt in a bind?

• free652 8y ago
  They can't redeem US securities, they have to wait for maturity or sell to a different entity.
  • amanaplanacanal 8y ago
    Which could lead to higher interest rates if done en masse, which would definitely affect the US economy.
    • AnthonyMouse 8y ago
      Assuming the Fed wants higher interest rates. Otherwise it can just buy them itself to keep interest rates in check.
      • fspeech 8y ago
        "Otherwise it can just buy them itself to keep interest rates in check." That would be no difference from "redeeming". Bond prices are determined by interest rates. When interest rate is the same as coupon rate the seller can sell for the face value of the bonds, equivalent to redeeming.
        • AnthonyMouse 8y ago
          The difference is that the Fed pays the market rate, not the coupon rate, and by doing so at scale, the demand raises bond prices and reduces interest rates. This is the opposite of what they've been doing recently -- selling bonds they already hold. Which is why bond prices are down and interest rates are up compared to a year ago.