President Donald Trump backed away from his threat to impose tariffs on NATO allies over his plan to acquire Greenland, but the damage—both diplomatic and financial—has already been done.
The dollar has kept falling, and top investors in Northern Europe are reportedly , while Danish pension funds have already sold off Treasury bonds.
Some of this is due to concerns about U.S. debt, but Trump’s Greenland crisis and ongoing unpredictability have also fueled calls for Europe to weaponize its capital. In fact, in U.S. stocks and bonds, with $3.6 trillion of that in Treasury debt alone.
Europe holds around a third of U.S. government bonds owned by overseas investors, or roughly 10% of the overall Treasury market—having nearly doubled its holdings since 2019, according to a Wednesday note from Capital Economics.
Yet it’s exactly this massive stockpile that makes a sudden European selloff of Treasuries unlikely, as moving that much money would roil financial markets.
Why the U.S. has ‘escalation dominance’
Shifting to alternative investments would send those prices skyrocketing and lower their expected returns, the note said. Other safe havens like the Swiss franc and gold have already appreciated so much that they offer negative real yields.
“Not only would it come with a financial cost, it would trigger a response in kind: U.S. investors hold large amounts of European government bonds too!” Capital Economics deputy chief markets economist Jonas Goltermann added. “ that, European banks still rely on dollar funding that’s ultimately backed by the Federal Reserve. To use a military term, ‘escalation dominance’ is firmly on the U.S. side.”
Michael Brown, senior research strategist at Pepperstone, also pointed out that a significant portion of Europe’s U.S. holdings is for collateral or cash management purposes—not discretionary investment decisions.
In addition, even in those discretionary cases, private investors hold the U.S. assets, meaning any government mandate to sell them would be nearly impossible, he said in a Wednesday note.
Dumping Treasuries would hurt Europe
If Europe unloaded its Treasuries, bond prices would plummet “in very violent fashion,” with spillover effects elsewhere—including in the eurozone, where borrowing costs would spike.
The currency market would also face upheaval as the euro surged, acting as a major headwind for the eurozone’s exports and economic growth, Brown added.
“A more practical option, if capital markets were to be seriously considered in any European retaliation, would be a ‘buyer’s strike’ at upcoming Treasury auctions—though even that would be a relatively difficult step to actually carry out,” he explained.