Davos (Switzerland) (AFP) – US Treasury Secretary Scott Bessent on Tuesday rejected the idea that European governments could aggressively sell American debt to counter Washington’s threats over Greenland, saying such a move would “defy logic”. President Donald Trump said at the weekend that, from February 1, Britain, Denmark, Finland, France, Germany, the Netherlands, Norway, and Sweden would be subject to a 10-percent tariff on all goods sent to the United States until Denmark agrees to cede Greenland. The announcement has drawn angry charges from US allies who are pondering countermeasures.
These could include retaliatory tariffs but also possibly a concerted strategy to offload US Treasury bonds. About a third of traded American government bonds, estimated at a total of some $30 trillion, is held by foreigners, led by Japan. Other major holders of US sovereign bonds include the UK, Belgium, Canada, and France. Aggressive selling of bonds would cause long-term interest rates to spike, make the refinancing of the US debt hugely more expensive for Trump’s administration, and weigh heavily on corporate financing and the economy as a whole.
“Europeans hold roughly $10 trillion in US assets: around $6 trillion in US equities and roughly $4 trillion in Treasuries and other bonds,” observed Ipek Ozkardeskaya, senior analyst at Swissquote. “Selling those assets would pull the rug from under US markets.” But asked by reporters at the Davos World Economic Forum whether the US was preparing for such a scenario, Bessent said that it “defies any logic”. Calling the US Treasury market “the best-performing market in the world” and the “most liquid” debt market, he said he expected Europeans to hold on to their exposure, not offload it.
“There’s a completely false narrative there,” he said. “I think everyone needs to take a deep breath. Do not listen to the media who are hysterical.” European Union leaders will hold an emergency summit in Brussels on Thursday to discuss their response to the Greenland crisis, and Trump said he had agreed to a meeting with “various parties” on the standoff while he is in Davos this week.
There were signs, meanwhile, in global markets that a “Sell America” movement was underway, said Kathleen Brooks, research director at XTB, a trading firm. US markets were closed on Monday for a public holiday, but “Treasury yields are rising sharply” in anticipation of Tuesday’s reopening, she said. The dollar fell and “Japan leads a global bond sell-off,” the analyst observed, adding that American equities were also marked lower ahead of Wall Street’s session Tuesday.
Concerns have mounted “over the Trump administration’s confrontational stance toward global counterparts, which could potentially dampen appetite for US assets,” with longer-term bonds bearing “the brunt of the decline,” said Patrick Munnelly, a money manager at the Tickmill group. Analysts said global investors were intently focused on Davos, where Trump is expected Wednesday, for fresh insights into the US-Europe standoff.
© 2024 AFP
