Who is selling US treasury bonds and why should you care? Felix Prehn maps the three dominoes from oil disruption to rising rates at your front door.

Your mortgage rate just jumped and most people have no idea why. Felix Prehn hosts Felix & Friends (Goat Academy) with over 630K subscribers. The former investment bank economist traced the cause to one meeting at the US Treasury.

Estimated reading time: 9 minutes

Who Is Selling US Treasury Bonds: the First Domino in the US Debt Crisis

Foreign governments are dumping the American dollar at the fastest pace in over a decade. Felix Prehn breaks down the chain reaction. It runs from a Middle East war to the rate on your home loan. His three-step domino framework shows how to protect your portfolio or benefit (profit) from the fallout, inflation and negative economy trends.

Key Takeaways

• A trust crisis is forcing countries to dump the dollar at the fastest pace in over a decade.
• Felix Prehn's domino framework connects the Middle East war to your mortgage and car loan.
• Home loan rates reached around 6.3%, and fund managers forecast a climb to 6%, unseen since 1999.
• Energy, gold, banks, and commodities thrive in the chaos while tech stocks, REITs, and small caps get crushed.
• The bond market now overpowers the Federal Reserve, and Washington spends more on interest than on military defense.
• Gulf oil exports shut down, importers ran out of dollars, and mass bond selling followed.

Summary

Felix Prehn's three-step domino framework explains how a single geopolitical event in the Middle East triggered a chain reaction ending at every American's front door.

• Domino 1: Gulf oil exports shut down. War in the Middle East disrupted oil shipments through the Strait of Hormuz. Gulf States lost revenue. Countries dependent on oil imports suddenly needed dollars they could no longer earn through normal trade.
• Domino 2: Oil-importing nations ran out of dollars. Without oil revenue flowing, countries like Japan, China, and Asian allies had to find cash fast. The quickest source of dollars? Selling US Treasury bonds they had been holding for decades.
• Domino 3: Mass bond selling crashed prices and spiked interest rates. When everyone sells bonds at once, bond prices drop. When bond prices drop, interest rates rise. The 10-year Treasury yield hit 5.2%. Home loan rates passed 6.3%. Fund managers forecast rates climbing to 6%, a level unseen since before the dot-com crash.

The deeper consequences:

• The US government owes $39 trillion. Foreign countries hold about $9 trillion of the IOUs
• About $240 billion in US debt was sold globally in 30 days
• Japan (largest foreign holder) dumped $47 billion. China slashed holdings to an 18-year low
• Central banks now hold more gold than US debt for the first time in 35+ years
• Washington spends more on interest payments ($1 trillion/year) than on military defense
• The bond market now overpowers the Federal Reserve. The Fed wants lower rates, but the market forces them higher
• Felix calls it a trust crisis, not a banking crisis. The one type of crisis Washington cannot fix by printing money

Winners: Energy stocks, gold, banks, commodities
Losers: Tech stocks, REITs, small caps, anyone refinancing a home or car loan

A Trust Crisis, not a Bank Crisis

US public debt stands at $39 trillion. Foreign countries hold about $9 trillion of the IOUs. For 80 years, treasury securities issued by Washington were the safest investment on the planet.

How does a Treasury bond work? Imagine you lend a friend $1,000. He writes you an IOU: pay you back in 10 years, plus $50 a year in interest. Now imagine he did the same with his neighbors, co-workers, and people in other countries. He owes everyone. The US government is a friend. And the IOUs total $39 trillion.

Now the people who lent the money need it back. All at the same time. Not because they want to sell. Because they have to.

About $240 billion in US government debt hit the secondary market in 30 days. Japan, the single largest holder of foreign-held treasury securities, dumped $47 billion. China slashed holdings to an 18-year low. Reserves at the New York Fed dropped to the lowest since 2012.

Only one country kept buying: the UK. Everyone else was a seller.

Central banks now hold more reserves in gold than in US debt. First time in over 35 years. The biggest quarter of gold purchases ever recorded. The people who run the dollar printers chose gold over dollar assets. Felix calls it monkey money. The printers do not want it anymore.

Felix Prehn pinpoints the root cause: a trust crisis. Not a banking crisis. Not a collapse. The one type of crisis Washington cannot print its way out of.

The Domino Framework Explained

Felix lays out a clear chain of cause and effect. A war closes the Strait of Hormuz. Oil stops flowing. Gulf states lose revenue. Nations that import oil demand dollars fast.

How do central banks get dollars quickly? They sell the most liquid dollar asset available. Treasury securities on the secondary market.

When bond prices drop, interest rates rise. The two move in opposite directions. Picture every condo in your building going up for sale on the same day. Prices crash. The treasury market works the same way. Too many treasury bills and notes for sale at once and the price collapses.

Felix narrows it down to two consequences for regular people. Mortgage rates spike. Car loan rates spike. Credit card rates spike. Every rate tied to the 10-year Treasury note moves higher.

The second consequence: the US government pays more to borrow. Washington already spends more on interest than on the entire military budget. New debt issuance at higher rates makes the deficit worse. Felix warns the cycle feeds on itself and accelerates.

Your Mortgage Just Got More Expensive

Home loan rates reached around 6.3%. Fund managers at Goldman Sachs and JP Morgan forecast a climb toward 6%. A level not seen since 1999.

What does a 1% rate increase cost on a $400,000 mortgage? Roughly $250 more per month. Over 30 years, an extra $90,000 in interest payments.

Pension funds and financial institutions holding long-term bonds face paper losses in the billions. Foreign investors who bought at lower treasury yields now hold assets worth less than the purchase price.

Refinancing dries up. Home sales slow. Small businesses pay more to borrow. The pain spreads from Wall Street to Main Street in weeks, not months.

Felix teaches the exact system Goat Academy members use to track rate movements. The method relies on bond auction results and secondary market signals, not on television predictions.

Winners and Losers in the Chaos

Not every sector loses. Felix breaks the treasury market into winners and losers.

Winners:

• Energy stocks (oil prices spike when supply drops)
• Gold and commodities (safe havens when the dollar weakens)
• Banks (collect wider spreads between deposit rates and loan rates)
• Defense contractors (war spending rises)

Losers:

• Unprofitable tech stocks (higher rates crush future earnings)
• REITs (property value drops when borrowing costs rise)
• Utilities (heavy debt loads become more expensive)
• Small caps (limited access to cheap credit)

European governments and hedge funds repositioned early. Sovereign wealth funds in the Middle East moved into gold and commodities months before the headlines hit.

Felix reads the money flow data live on his channel. The pattern is clear: money leaves bonds and moves into hard assets. Follow the money, not the commentary.

The Bond Market vs the Fed

The Federal Reserve sets short-term rates. The bond market sets long-term rates. Right now, the bond market is winning.

Washington needs to refinance $9 trillion in public debt over the next 12 to 18 months. Every auction at higher rates adds billions to the annual interest bill. Government spending on interest has already passed military spending. Felix calls it the biggest line item nobody talks about.

The Fed wants to cut rates. The bond market keeps pushing them higher. Foreign investors selling treasury securities on the secondary market create more supply than the Fed can absorb.

Trade tensions between the US and China add fuel. China holds over $700 billion in US bonds. Any large sale crashes prices and spikes volatility in the treasury market. Felix compares it to two people in a canoe. If one stands up, they all fall in.

Why Countries Had no Choice

The dollar-for-oil agreement started in 1974. Saudi Arabia agreed to price oil exclusively in dollars. Every barrel sold anywhere in the world is priced in dollars. One Gulf ally breaking ranks could unravel the entire system. Felix compares it to a sweater with a loose thread. One pull and the whole thing comes apart.

The dollar-for-oil agreement has held for over fifty years. Five decades of dollar dominance now face a real test.

The Treasury confirmed publicly: many Gulf and Asian allies made the same request. Not one country. Many.

Oil importers face the same squeeze from the opposite side. Japan, India, South Korea, Thailand, Turkey. All need dollars to pay for oil. The fastest way for a central bank to raise dollars? Sell US Treasury bonds.

Felix Prehn's Tips and Insights

• The current crisis is a trust crisis. Washington cannot print its way out of it.
• When bond prices fall, interest rates rise. The two always move in opposite directions.
• Follow wherever the money is moving. Ignore predictions from television or YouTube commentators.
• Energy, gold, banks, and commodities perform well when rates rise and the dollar weakens.
• Avoid unprofitable tech stocks, REITs, utilities, and small caps loaded with debt.
• The dollar will likely fall faster even after the Iran war ends. Goldman Sachs and JP Morgan agree on another 10% decline.
• Bad timing is avoidable. Wall Street has followed hard rules for over 50 years.

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Frequently Asked Questions

What Are Treasury Bills, Treasury Notes, and Treasury Securities?

Treasury bills mature in under one year. A treasury note matures in 2 to 10 years. Treasury securities is the umbrella term for all US government debt instruments sold at auction.

What Happens to Bond Value When Interest Rates Rise?

Prices drop. A bond locked at 3% loses value when new bonds pay 5%. Holders who sell on the secondary market take a loss on the principal.

Do Pension Funds and Hedge Funds Hold US Treasury Bonds?

Yes. Pension funds, hedge funds, and other financial institutions hold trillions in US debt. When volatility spikes, forced selling from large holders can crash prices further.

How Does Government Spending Connect to the Bond Market?

Washington funds its deficit through new debt issuance. Higher supply means more bonds at auction. Added volume pushes prices down and treasury yields up.

Why Are Foreign Investors Selling US Bonds?

Trade tensions, a weaker dollar, and the need for cash forced foreign investors to liquidate holdings. Nations dependent on oil imports sold treasury securities to raise dollars fast.

What Does Maturity Mean for Bonds?

Maturity is the date when the government repays your principal. Short maturity means less risk from rate swings. Long maturity locks your income for decades but carries more volatility.

Can European Governments Affect the US Treasury Market?

Yes. European governments hold hundreds of billions in US public debt. A coordinated sell-off from EU central banks would flood the secondary market with supply.

Disclaimer

The content on the website is for informational and educational purposes only. It does not constitute and should not be construed as financial or investment advice or an offer to purchase or sell securities. The content is not personalized or tailored to a specific person or group of persons, nor to their personal investment or financial needs. You should consult a financial adviser or other investment professional authorized to provide investment advice. Investing comes with risks, including the risk of loss. Presentations of trades made by Goat Academy or its personnel are not a guarantee that any investment decision made by a student will be successful. Past performance is not a guarantee of future performance.