Why the downvote? I was responding to the claim the impact of a Chinese bond dump is "misunderstood" because most bonds are held in the US by retail investors and mutual funds.
In fact, most treasuries are not held by retail investors or mutual funds in the US [1]. The largest buyer as of late has been the Fed [2], indicating that when the Fed is pursuing ZIRP, there aren't a whole lot of other buyers. If China were to dump its bond portfolio, either interest rates would spike, or the Fed would have to expand its balance sheet by another trillion dollars.
In fact, most treasuries are not held by retail investors or mutual funds in the US [1]. The largest buyer as of late has been the Fed [2], indicating that when the Fed is pursuing ZIRP, there aren't a whole lot of other buyers. If China were to dump its bond portfolio, either interest rates would spike, or the Fed would have to expand its balance sheet by another trillion dollars.
[1] http://useconomy.about.com/od/monetarypolicy/f/Who-Owns-US-N... [2] http://www.bloomberg.com/news/2012-12-03/treasury-scarcity-t...