Because China and Japan have perennially large trade surpluses with the U.S., they use these excess dollars to buy Treasuries. China also manages its exchange rate by buying and selling dollars and yuan. Treasuries remain the primary vehicle for exchange rate management in such a predetermined band. The dollar depreciated 4.4 percent since the end of 2016, according to the Bloomberg Dollar Spot Index that tracks the performance of a basket of 10 leading currencies to the American currency. That's another way of making U.S. debt more expensive.
China and Japan, which account for more than $2 trillion of U.S. securities, have reduced their holdings in recent years. As the U.S. increasingly relies on the bond market to finance its budget deficits, reduced demand at a point when such deficits can only become more burdensome will force the U.S. to offer higher rates.
As much as he loathes the Fed for following its mandate to reach equilibrium, Trump must accept the additional indignity of being America's first president to pay higher yields than China to finance the U.S.
This article provided by Bloomberg News.