Selling US debt, Europe's difficult weapon against Trump

"On Tuesday at the Davos forum, U.S. Treasury Secretary Scott Bessent ridiculed the idea that Europe might retaliate against Donald Trump's expansionist ambitions in Greenland by selling U.S. sovereign bonds. He said the notion defies any logic, although the market seems to have taken note of the possibility, triggering a selling wave that exposes the vulnerabilities of the world's largest economy: its high debt and the imbalance of its public accounts."

"Washington is upending the global geopolitical order and using tariffs to advance its expansionist aims in Greenland: it threatened a 10% levy starting in February potentially rising to 25% later on European countries that deployed troops to the island. These threats were later withdrawn after Trump announced that a framework for a deal on Greenland had been reached. European investors hold substantial U.S. debt: the United Kingdom $800 billion; Belgium $399 billion; Luxembourg $328 billion; Switzerland $243 billion; and Norway $218 billion."

"Yet Trump's policies are accelerating investors' disinterest in the dollar and U.S. sovereign bonds, following straightforward financial logic rather than any political retaliation. On Tuesday, the yield on the 10-year U.S. Treasury approached 4.3%, the highest since August, while the 30-year yield neared 5%, a level that could trigger stock market corrections and alarms among bond watchers. At 5%, U.S. tech valuations are unsustainable, warns Roberto Scholtes, strategist at Singular Bank."

An idea that Europe might retaliate against U.S. expansionist moves by selling U.S. sovereign bonds was characterized as illogical, yet markets reacted by selling, exposing vulnerabilities in the U.S. economy: high debt and public-account imbalances. Tariff threats linked to Greenland sparked earlier tensions in U.S. sovereign debt. Washington's tariff posture and geopolitical shifts have reduced investor appetite for dollars and U.S. bonds, following financial logic rather than overt political retaliation. European holdings of U.S. debt are substantial—UK $800bn, Belgium $399bn, Luxembourg $328bn, Switzerland $243bn, Norway $218bn—making a halt in purchases potentially destabilizing. Rising yields—10-year near 4.3%, 30-year near 5%—threaten markets and tech valuations.

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