Entities buy UST because there’s a demand for it. It’s considered the risk-free asset, so when you have billions in cash, you park them in UST because you know you can get it back.
But instead of having natural demand for UST, the Fed has started buying UST which have driven down the interest rates. And they started buying mortgages to drive down those interest rates as well.
But they’re doing it by creating money and buying them on the open markets. It’s basically monetizing their obligations which is unnatural and fake.
So if (and it’s a big if) the markets decide they don’t want anything to do with this, and would rather buy a Japanese government bond, the markets would get flooded with those products, causing interest rates to spike. They would take the USD and sell them and buy Japanese Yen for example. Again selling USD would cause the price to drop relative to other currencies.
