China may make a ‘retaliatory’ move that experts say will ‘hit' US homeowners 'hard.' Here's what's happening

Moneywise

Fri, Jun 6, 2025, 3:33 PM 5 min read

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U.S. Treasury bonds, traditionally seen as one of the world’s safest financial assets, are suffering a sharp sell-off as President Donald Trump’s tariff war with China sparks panic across financial markets. Mortgage rates are climbing in response to this sell-off, according to CNBC.

Throw in the accelerated asset liquidation in China and things could get much worse.

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Mortgage rates tend to track the 10-year Treasury yield, so it doesn’t bode well for mortgages if investors decide to sell U.S. Treasury bonds. However, on May 7 the Federal Reserve held overnight interest rates steady at between 4.25% and 4.50% in a “wait and see” approach.

Adding to the risk is the possibility that U.S. mortgage-backed securities (MBS), 15% of which are held by foreign countries, could also be increasingly on the selling block.

Guy Cecala, executive chair of Inside Mortgage Finance, noted that if China wanted to strike a hard blow, they could offload Treasuries, calling it a potential threat.

At the time, President Trump had imposed up to 145% tariffs on Chinese goods. China retaliated with 125% tariffs on U.S. imports. Despite market volatility, Chinese central bank deputy governor Zou Lan recently stated there were no plans to drastically change their foreign reserves, emphasizing that fluctuations in individual assets would have limited impact.

“One single asset’s change in a single market will have a limited impact on the reserves,” he said.

China’s foreign exchange reserves were $3.205 trillion at the end of April, compared to $3.184 trillion in March.

But the question remains: If countries like China decide to dump U.S. Treasuries and MBS in retaliation for tariffs and trade policies, how could that impact you?

Treasury securities are bonds issued and backed by the U.S. federal government, while mortgage-backed securities (MBS) contain pools of mortgages.

Foreign countries hold $1.32 trillion in U.S. mortgage-backed securities (MBS), with China, Japan, Taiwan, and Canada being major holders. A MBS sell-off could disrupt global financial markets.