China may take a “retaliatory” move, and experts say it will “hit” American homeowners “hard”. This is what happened
Mortgage rates are responding to the sale of Treasury bills, according to CNBC.
The situation could get worse when investments in China accelerate mortgage sell-offs. Mortgage rates tend to track fiscal yields over 10 years, so if investors decide to sell our Treasury bills, then mortgages are not good for mortgages.
Increased risk is the possibility of US mortgage-backed securities (MBS), with 15% being held by foreign countries, and may also be increasing
“If China wants to hit us, they can remove the treasury. Is this a threat? Sure,” Inside Mortgage Finance executive director Guy Cecala told CNBC.
At the time of writing, President Donald Trump imposed 145% tariffs on Chinese goods, while China retaliated against tariffs on imported American goods.
How will this affect you if a country like China decides to abandon our treasury and MB in retaliation for tariffs and trade policies?
Treasury bonds are bonds issued and backed by the U.S. federal government, while mortgage securities (MBS) contain mortgage loans.
According to Ginnie Mae's global market analysis, foreign countries have $1.32 trillion in U.S. mortgage-backed securities. China, along with Japan, Taiwan and Canada, is one of the largest holders of agency mortgage-backed securities.
If Chinese institutions start selling MBS (if other countries start to follow suit), it may ripple in global financial markets.
Some people suspect it will happen. This will “destroy China's own financial interests by devaluing its remaining shares and understanding the global currency market,” Melissa Cohn, regional vice president of William Raveis Mortgage, told Newsweek.
It is widely believed that the country keeps its currency, with the renminbi (INMB) below the US dollar, in China's best interest, because as a country that relies on exports, it wants to keep its price competitive. Therefore, by purchasing US debt, China maintains a balance in which Americans can continue to buy more Chinese products.
Still, the rising trade war has increased uncertainty – if China is willing to absorb losses, it will not abandon it. China has already started selling some of its U.S. MBS last year, and people have been speculating that it is continuing to do so.
