Introduction
A recent article from CNBC has triggered concern over China’s potential economic retaliation against the U.S. by selling off U.S. mortgage-backed securities (MBS). It suggests that such a move could worsen already rising mortgage rates and cripple the U.S. spring housing market. But how much of this scenario is grounded in fact, and how much is speculative fear? We broke down the most critical claims to assess potential truths and exaggerations.
Historical Context
U.S. mortgage-backed securities have long attracted global investors thanks to their perceived stability and returns. Over the past two decades, China and Japan have been significant buyers of U.S. Treasurys and MBS. These investments have historically served as avenues for countries like China to park excess foreign reserves while maintaining economic leverage. Trade tensions and tariff wars under previous administrations have prompted occasional speculation over China retaliating financially by offloading U.S. debt holdings — but historically, such moves have been rare and measured due to the economic consequences for all parties involved.
Fact-Checking Specific Claims
Claim #1: “China is one of the largest holders of U.S. MBS and could crush the housing market by selling them.”
It is accurate that China holds a significant portion of U.S. agency-backed mortgage securities; however, calling China one of the “largest” is only partially true. According to Ginnie Mae, as of early 2025, foreign countries collectively owned 15% of all U.S. mortgage-backed securities. While China is among the top holders, it sits behind Japan in many quarters. Additionally, the notion that China could “crush” the U.S. housing market is speculative and inflammatory. Experts have noted that mass sell-offs would hurt China’s own holdings by driving down asset values. Historically, even during trade disputes, China has avoided drastic self-damaging economic retaliation through U.S. debt liquidation.
Claim #2: “China and Japan already started selling U.S. MBS, with Chinese holdings down 20% by December 2024.”
This claim is verifiable. Based on U.S. Treasury International Capital (TIC) data, China reduced its MBS holdings by approximately 20% from September to December 2024. Japan also showed slight reductions. However, it’s important to note that such moves may reflect broader portfolio diversification or market timing rather than geopolitical retaliation. The article lacks this context, leading readers to assume a deliberate and unified financial attack instance, which is misleading.
Claim #3: “If China continued selling MBS, mortgage rates would rise further, hurting the spring housing market.”
There is some truth here, though cause and effect are oversimplified. Selling mortgage-backed securities could lead to wider mortgage spreads, increasing the cost lenders pay to fund loans — which can, in turn, raise mortgage rates. However, rates are influenced by many factors including Federal Reserve policies, domestic demand, and broader inflation trends. The Federal Reserve is also reducing its own MBS holdings as part of monetary tightening. Experts like Eric Hagen cited in the article rightly note investor anxiety, but there’s no guaranteed or immediate link between foreign MBS divestment and catastrophic mortgage rate spikes. The article leans into worst-case scenarios without presenting probabilistic nuance or balancing opinions.
Claim #4: “Foreign MBS selling could disrupt the mortgage market given the lack of visibility on their intentions.”
This statement is partially accurate. Market uncertainty, especially from unpredictable foreign actions, can cause investors to demand higher yields — thereby increasing mortgage costs. However, the phrase “lack of visibility” should not be interpreted as immediate peril. Foreign holders of U.S. MBS usually adjust portfolios gradually to avoid destabilizing markets — which would reduce the value of their own investments. Moreover, global liquidity and the availability of domestic buyers also help absorb MBS-related shocks. The article’s suggestion that investors could panic fails to recognize how resilient and diversified the global bond market is.
Conclusion
While CNBC outlines legitimate factors that influence the U.S. housing market — including rising mortgage rates and foreign investment behaviors — the article presents a speculative narrative as fact. Hyperbolic phrases like “crush the housing market” exaggerate the actual risk posed by foreign MBS sell-offs. The claims checked reveal partial truths mixed with inference-heavy conclusions. Although China has reduced its MBS holdings, there is no clear evidence of an imminent, retaliatory sell-off intended to damage the U.S. economy. The housing market faces multiple pressures, but foreign MBS liquidations are not currently the most significant threat.
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