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President Trump's plan to impose high tariffs on imports of steel and aluminum has triggered financial market turmoil and stirred concerns that some trading partners may retaliate by selling U.S. bonds.
If China, Japan and other countries suddenly decide to reduce US debt, the market may be in trouble. These countries have used the US dollar to buy American bonds through the US trade surplus.
Analysts and investors said on Friday that if the trading partners carried out such retaliation after Trump's first major protectionist action, it would be a critical moment for overseas US debt demand to offset the surge in demand for us federal borrowing.
"These threats are real," said Kristina Hooper, chief global marketing strategist at Invesco in New York. "We need more overseas demand, not less."
Analysts and investors believe that Beijing, Tokyo and other overseas central banks are unlikely to sell out if they sell US debt. They say that countries can burn their own US bond investments, but that will not get a guaranteed return from Washington.
"They already have a lot of American debt. They will move stones and smash their feet, "said Jack McIntyre, the portfolio manager of Brandywine Global Investment Management.
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