If a sovereign nation or nations were to sell off large amounts (say 30%) of United States bonds, what effects would it have on the United States' economy and debt situation? I am guessing that a mass sell-off of this sort would cause the price of U.S. bonds to fall — what would be the fallout?

Would different types of bonds (T-Bills, Treasury notes, etc;) have different effects?

  • 3
    $\begingroup$ This question can’t be answered without opinions if you don’t specifying other relevant parameters of the economy. Unless the question is revised it should be closed as opinion based. $\endgroup$
    – 1muflon1
    Nov 9 at 17:55
  • $\begingroup$ @1muflon1 actually something much like that happened in the late 70s or early 80s. Something similar happened during the Jackson Administration. However, the question is too broad still. There are many questions in post. It isn't well defined. The impact would have been different in different time periods. $\endgroup$ Nov 10 at 3:48
  • $\begingroup$ I had assumed current market conditions in my original question. Should I update the original question to reflect this? $\endgroup$
    – guest1111
    Nov 10 at 14:29

Not empirical:

Let's suppose China wanted to sell off all it's US bonds tomorrow.

Given what we've seen over the past few years with the FED being very willing to buy what would likely happen is the FED would see a HUGE spike in volume and impose temporary restrictions on sales while stepping up it's own bond buying program. Opinion:I'm betting they'd be able to clear that in a fairly short period of time (2-4 weeks) with a minimal increase in long term rates (1-2%)

Without any additional buying (FED intervention) interest rates on those bonds would SKYROCKET an be an AMAZING buying opportunity! However this would also be associated with a currency crisis as the selling party pulls their money out of USD and this could cause serious inflation domestically and could bankrupt any firms that were long currency futures. It would also likely bankrupt any firms that had sold rate futures or were on floating rates with their debts.

If you're looking for more of a case study; the Asian financial crisis would end up fitting in this boat pretty well.

If you wanted to approach to approach this empirically you could look at the mathematical-finance lit on how fast you can liquidate a position. It's pretty easy stuff to plug into an online graphing calculator to look at how rates would change given said volume


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