Investors are growing concerned about a U.S. asset exodus as Treasuries and the dollar dec
April 12, 2025
The April sell-off for financial markets has been wider and more volatile than typical pullbacks, fueling concern that the aggressive and constantly changing trade policy from Washington, D.C. could be doing long-term damage to the financial standing of the U.S.
The S&P 500
“The big takeaway from this year, from the Trump presidency, from everything that’s happened, is that there’s a rotation out of the U.S. And obviously that’s become vicious now — with bond yields staying high and the dollar falling, it’s become the story. But that exodus started well before Liberation Day. … U.S. is the bubble. U.S. All of it,” Marco Papic, BCA Research strategist, said Friday on “Squawk Box.”
The big swings in the stock market are eye-popping on their own, but Wall Street pros are becoming increasingly concerned about the moves in the currency and bond markets. Treasurys and the dollar typically benefit from flight-to-safety environments, a function of the U.S.’ historical financial strength.
But on Friday, falling bond prices pushed the benchmark 10-year Treasury yieldICE U.S. Dollar Index
“The market is re-assessing the structural attractiveness of the dollar as the world’s global reserve currency and is undergoing a process of rapid de-dollarization. Nowhere is this more evident than the continued and combined collapse in the currency and US bond market as this week comes to a close,” Deutsche Bank strategist George Saravelos said in a note to clients Friday.
A blow to confidence?
To an extent, some of the rapid moves in financial markets may be mechanical, feeding off of each other. For example, declines in U.S. stocks and bonds can put downward pressure on the dollar just because foreign investors now have less need for the greenback.
But the size and scope of the moves suggest that something deeper may be changing, and that there are investors who are now actively turning away from the U.S.
“Normally, when you see big tariff increases, I would have expected the dollar to go up. The fact that the dollar is going down at the same time I think lends some more credibility to the story of investor preferences changing,” Minneapolis Fed president Neel Kashkari said Friday on “Squawk Box.”
The same thought process could be at play in the bond market, as foreign governments and other institutions are typically large holders of U.S. Treasurys. Gennadiy Goldberg, head of US rates strategy at TD Securities, told CNBC that he hasn’t seen direct evidence that foreign investors are dumping Treasuries but the fear alone is enough to move the market.
“Markets are very confidence-driven. Even the perception that foreign investors are trying to step away from Treasury markets can trigger pretty significant panic,” Goldberg said.
Economic impacts
These moves are not just an abstraction of financial markets but can have real economic impact. One issue is that companies with significant foreign sales business could see their products caught in the crossfire of the global trade dispute. An anti-American sentiment could also become an issue if the standoff continues.
“A lot of our big companies that have great brands overseas are being discriminated [against] … We have a big image issue right now,” BlackRock CEO Larry Fink said Friday on “Squawk on the Street.”
The rising Treasury yields also cloud the outlook for U.S. government spending, and by extension economic growth. Higher yields means the U.S. government will owe more interest on any debt it rolls over or issues for new spending, exacerbating worries about the federal deficit.
“The steady state level of sustainable US fiscal deficits is moving lower. This reduces the flexibility of the US administration in pursuing expansionary fiscal policy to support growth, much in the same way the UK and France have faced similar constraints,” Deutsche Bank’s Saravelos wrote.
Looming over these market moves is the possibility of another flare up in inflation. While recent readings have come in relatively cool, they do not reflect the April tariff announcements. The latest University of Michigan consumer survey showed that Americans are worried about a spike in inflation tied to the tariffs.
Inflation is not only worrisome on its own, but it also limits the options for the Federal Reserve, which will be reluctant to cut interest rates when consumer prices are rising.
“It’s about what’s coming next, and that’s tariff driven inflation. And that has changed the dynamic within the bond market,” Jim Bianco, president of Bianco Research, said Friday on “Money Movers.” “And all this talk about leverage unwinds and bank selling and whether or not the Chinese are selling and all that other stuff, that’s just an accelerant on the bigger move here.”
— CNBC’s Michael Bloom contributed reporting.
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