Who really holds the cards: Trump or the bond market?

When a Danish pension fund recently announced it would sell its US$100 million (£74 million) holding of US government bonds, the move was tiny in financial terms – just a drop in a US$30 trillion ocean. But it touched on a much bigger issue. Foreign investors now hold around one-third of all US government debt, amounting to roughly US$9.5 trillion.

Of these foreign holdings, Europe has US$3.6 trillion, making it collectively the largest holder of US debt, larger than Japan (which holds...