A decision by foreign central banks to sell their holdings of U.S.Treasury bonds will
A)lower bond prices and interest rates in the United States.
B)increase bond prices and interest rates in the United States.
C)increase bond prices and lower interest rates in the United States.
D)lower bond prices and increase interest rates in the United States.

Question

Quizplus · Accepted Answer

If foreign central banks decide to sell their U.S. Treasury bond holdings, it would increase the supply of bonds in the market, resulting in a decrease in their prices. As bond prices and yields are inversely related, the decrease in bond prices would lead to an increase in yields or interest rates in the United States. Therefore, the correct answer is D, Lower bond prices and increase interest rates in the United States.

A Decision by Foreign Central Banks to Sell Their Holdings