China is stuck between two bad options for its currency, and the choice it is making now is pushing it to dump US government bonds — a risk for the bond market and anyone who depends on low interest rates.

• China can let the yuan fall, which would make its exports cheaper and soften the hit from Trump's tariffs.
• A weaker yuan would also raise prices inside China and could spark a rush of money out of the country, into gold, Bitcoin, and other foreign assets.
• Beijing is picking the other path: propping up the yuan by spending its dollar reserves to buy its own currency.
• To get those dollars, China has to sell US Treasury bonds — which looks like retaliation against Washington but is really self-defense.

Outlook: Expect more Chinese selling of US government debt as long as Beijing keeps defending the yuan, which puts upward pressure on US interest rates.