Treasuries selloff could see rates surge
In the wake of deepening trade tensions between the United States and China, economic analysts are warning that Chinese financial retaliation could disrupt American mortgage markets and hit US homeowners hard.
The warning follows a recent escalation in tariffs between the two nations, with president Donald Trump implementing 145% tariffs on Chinese goods. In response, China imposed 125% tariffs on American imports. Now, speculation is growing that Beijing could go further by offloading US Treasury bonds or mortgage-backed securities (MBS).
Mortgage rates in the US are closely tied to the 10-year Treasury yield. A sell-off in Treasuries can push yields up, which in turn drives mortgage rates higher, a Moneywise report highlighted. The impact would be magnified if foreign holders, including China, began divesting from MBS — financial products composed of pooled home loans.
As of the end of March, China’s foreign exchange reserves stood at $3.24 trillion, up 1.2% from the end of 2024. While the People’s Bank of China has stated that it does not plan a significant shift in its holdings, some analysts remain cautious.
“One single asset’s change in a single market will have a limited impact on the reserves,” said Zou Lan, a deputy governor at the central bank, during an April briefing.
Yet, foreign nations — including China, Japan, and Canada — hold $1.32 trillion in US MBS. A sudden liquidation of these assets could cause their value to fall, which would result in higher mortgage rates for American borrowers.
“Most investors are concerned that mortgage spreads would widen in response to either China, Japan or Canada coming in with a retaliatory objective,” said Eric Hagen, a mortgage analyst at BTIG.
Higher rates could price out potential homebuyers, increase monthly payments, and reduce the appeal of refinancing. The average 30-year fixed mortgage rate stood at 6.83% as of April 17, according to Freddie Mac.
While some experts believe a mass sell-off would damage China’s own financial interests, it remains a risk in a rapidly evolving trade conflict. In the meantime, economists advise American homeowners and buyers to consider locking in mortgage rates and strengthening financial buffers.
As trade tensions persist, the housing market faces growing uncertainty — and American families may ultimately bear the cost.
What are your thoughts on the potential impact of US-China trade tensions on the US housing market? Share your insights below.
