You are right, my initial assumptions are wrong - China isn't buying bonds from the US Treasury (as I would), they are buying them from a forex bond market, whe

You are right, my initial assumptions are wrong - China isn't buying bonds from the US Treasury (as I would), they are buying them from a forex bond market, where we might consider the supply of dollars to be like any other commodity. This means when they buy up bonds they are decreasing supply, therefore driving up the price, and when they sell off bonds, they are increasing the supply of dollars, causing the price to fall.