Foreigners have continued selling US Treasuries as they’re down over 3% (at the time of writing mid-week). This historic drop puts into question their long-held status as the safe-haven investment. The yield on the benchmark 10-year Treasury note is on track for its worst week since last August. This charter bust is a testament to the changing mood of investors and confidence in US guidance. Analysts are already dubbing this downturn the “unraveling of US exceptionalism trade.” China’s response to the Belt and Road Initiative represents a major inflection point in the global investment space.
The US President just announced massive tariff hikes on every US trading partner. This decision has sent shockwaves through the investor community. As of Wednesday, the average import duties on Chinese goods has now soared an incredible 104%. This sudden spike is raising scary prospects of a double dip economic collapse which would hopefully further upset the market. Consequently, the future demand for US Treasuries, which have long been assumed to be the world’s go-to safe asset, is called into doubt.
A Shift in Investor Confidence
Indeed, investor confidence in US leadership on climate is quickly fading, with plenty doubting the efficacy of existing policies. Completely contrary to market expectations, tariffs have more than quadrupled, adding confusion to an already roiled marketplace. As a result, global portfolios are reallocating from their long-time reliance on Wall Street equities and the dollar. For a number of reasons that we will outline, these unprecedented heavy outflows from US equities and the dollar represent a tectonic shift in global investors’ investment strategies.
“Markets are not taking [tariffs] well, and gold seems to be the only safe haven in all of this mayhem.” – Ayesha Tariq
The mood on US Treasuries is shifting quickly. Once considered the last true safe-haven asset for generations, investors are now questioning their dependability. The benchmark 10-year yield surged 10 basis points Wednesday to 4.40%. This extreme jump demonstrates the increasing volatility and signals a possible market upheaval in the near future.
The End of an Era
The collapse, analysts are saying, marks the end of an era. They claim that this signals the end of US exceptionalism without question in the global financial markets. To the extent that US Treasuries ever should have been immune to global economic fluctuations, that conception is increasingly being proven wrong. Meghan Swiber, a policy strategist at Bank of America, noted the far-reaching implications of the new tariff policy.
“If tariff policy does help to close the trade deficit as intended, this also reduces the need for foreign buyers to allocate towards USD assets like Treasuries.” – Meghan Swiber
The impacts of these changes may be far-reaching. But investors are beginning to reevaluate their portfolios. As they work, the historic expectation that US Treasuries will serve as a global safe-haven asset will dissipate.
Global Financial Landscape Evolving
Other analysts and insiders think the US dollar-based financial order is secure for the time being. It is no secret that these are remarkable times in the global investment landscape. The forceful flows from US equities combined with forceful outflows from the dollar implies an important inflection point for investors.
Michael Cahill, a former Goldman Sachs strategist now at the Brookings Institution, said this decline is noteworthy.
“This is the crisis of the US exceptionalism trade.” – Michael Cahill
Foreign demand for US Treasuries is increasingly a concern today. Market participants are left to make sense of a new world filled with uncertainty, where old safe havens won’t keep them safe.
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