How To Stop Buying US Treasury Bonds

468 Words2 Pages
Among the concerns that were raised during a Congress hearing was the possibility that foreign governments would stop buying U.S. Treasury bonds, a practice used by governments to prevent their currencies from appreciating against the U.S. dollar. Use the model of supply and demand to describe the Treasury bond market and to predict the direction of quantity and price in this case.

Treasury bonds have been used for many years. With the fluctuation of interest rates the holder of a bond could stand to gain or lose a lot of money. Back in the 1950’s interest rates were 1% on a 3-month Treasury bonds. However, you can see a huge spike in 1981 when the interest rate on those bonds went up to more than 15%. Finally since the 2008 mortgage crisis
…show more content…
When a foreign government is the purchaser they do it in larger amounts. I believe it was estimated that China has the most US bonds even though they sold off more than $1.35 million at the beginning of the year.

As the price of bonds decrease the chance of more countries buying them will take place. However, with the consistently low interest rates I don’t think the purchasing by those countries will be large. But when you consider other factors I include at the end of this, that may not be the true case.

This is a demand function table I got from the website

It shows that price of bonds at a lower amount will increase the demand of those items.

Figure 1. Demand function for bonds

Here is a supply table from the same site. One thing to keep in mind that the price of a bond does not necessarily mean an increase to the interest rates of that said bond. At least as far as I understand it.
Figure 2. Supply function for
Get Access