About $760 billion worth of US Treasuries are in China's hands. Does the US’s geopolitical rival hold all the cards?
After a chaotic week that saw global financial markets nosedive and raised fears of an imminent US recession, the Trump administration stepped back from the brink on Wednesday afternoon by announcing a 90-day pause on tariffs against most trading partners and a reduction in so-called “reciprocal” tariff rates.
The president’s announcement saw 10- and 30-year US government Treasuries, which had ticked alarmingly upwards on Tuesday and Wednesday morning in an ominous sign for mortgage rates, begin to inch lower as a panicked selloff slowed.
But while stock markets also soared after Trump’s decision to pare back the tariffs, an uncertain future is still ahead for the US mortgage market – largely because of an escalation in the US-China trade war even as levies on other countries were lifted.
Trump said in a Truth Social post that he was hiking charges on Chinese imports to 125% after China retaliated to the US’s initial flurry of tariffs, the latest broadside as a potentially lengthy trade spat between the two countries gathers pace.
That’s significant for the US mortgage market because China held about $760 billion worth of US government debt as of December 2024, including significant investments in mortgage-backed securities (MBS), and could push Treasury bond yields up if it decides to unload those holdings.
Such a move would send mortgage costs higher, Cotality chief economist Selma Hepp (pictured top) told Mortgage Professional. “China has so many US Treasuries and can easily dump a lot of that out right now. A lot of it is mortgage-backed securities, which would raise our mortgage rates significantly,” she said.
Housing market could bear the brunt of Chinese Treasury selloff
Some market watchers speculated that the jump in Treasury bond yields seen overnight on Tuesday moving into Wednesday arose in part from China deciding to offload bonds in response to Trump’s latest round of tariffs.
If that were to become a clear Chinese strategy during the trade war, Hepp suggested, it could pour cold water over a hoped-for increase in housing market activity across the US.
A fire sale in US Treasuries gathered pace overnight, sending their yields soaring and likely pushing mortgage rates higher as investors sounded the alarm on President Trump’s tariff war.\https://t.co/0a9yr4Cnce
— Mortgage Professional America Magazine (@MPAMagazineUS) April 9, 2025
“The only reason why I felt that this spring homebuying season was halfway decent is that mortgage rates were relatively stable for a month, before the last couple of days,” she said. “You think you know something one day and then it changes the next. So it’s really hard to say what the future is going to look like.
“The spring market has showed progress and that’s been really good – some turnover in the housing market, finally. But I just don’t know what that’s going to mean going forward if mortgage rates go up because really, we’re overstretched in terms of affordability.”
Few homebuilders or buyers likely to be comforted by temporary tariff pause
What’s more, while the decision to put tariffs on hold for three months has staved off – for now – the prospect of even wider financial market chaos, it’s also created an atmosphere of uncertainty that could push more homebuyers and builders to the sidelines.
Consumer sentiment has been on a steady decline in recent months amid growing gloom about the economy’s future. The Conference Board’s Consumer Confidence Index, a gauge of how Americans are viewing the economic landscape, declined in March – and its Expectations Index, which measures the short-term outlook for income, business, and labor market conditions, slid to its lowest level in 12 years that month.
The tariff pause just adds to a lack of clarity about what’s in store down the line, Hepp said. “I think it even makes things more difficult because you don’t know what [the tariff] is anymore. At least if it’s X amount, you know that this is the effective tariff rate,” she said. “You could plan for something – but now it’s all off. It makes it so difficult for businesses to plan.
“And survey after survey now is showing people holding back spending, and businesses as well: spending, hiring, everything is on pause because of all these uncertainties. So I think this actually makes things even more difficult.”
Stay updated with the freshest mortgage news. Get exclusive interviews, breaking news, and industry events in your inbox, and always be the first to know by subscribing to our FREE daily newsletter.
