Investors are getting more concerned about a possible rush for the exits from U.S. assets. Equally worrisome, the Treasury bond market and the dollar themselves are now signaling serious weakness. George Saravelos, a strategist at Deutsche Bank, noted in a recent client note that the simultaneous downturn of the currency and bond markets indicates a significant shift in investor sentiment. That alarming trend is accelerating. Investors, both domestic and foreign, are starting to walk concerned and actively fleeing U.S. assets.
Jim Bianco, president of Bianco Research, pointed out that the long-term sustainable level of U.S. fiscal deficits is getting lower by the day. He pointed out that this cut constrains the U.S. government’s ability to adopt expansionary fiscal measures. These policies are key to providing the foundation for continued economic growth. First, inflation-related concerns about tariffs continue to grow. According to the most recent survey by the University of Michigan, over 40 percent of Americans today are more afraid than they’ve ever been of rising prices in the months ahead.
The downmarket for U.S. stocks and bonds are playing out in ways that are much larger than the financial markets. As foreign investors see less need to hold the dollar, this trend can put downward pressure on its value. Despite President Donald Trump’s announcement of new tariffs on April 2, the S&P 500 has already dropped by 5.4%. The increase has been a major driving force behind a turbulent start to the stock market in 2025.
As if these internal motivations weren’t enough, there’s plenty of external pressure to go around. Observers, both national security hawks and others, are asking if the Chinese government is asset-stripping America. This unexpected move would likely greatly increase the overall momentum of market direction. And surging Treasury yields further cloud the near-term fiscal outlook for the U.S. government and American economic growth. These circumstances compound layers of unpredictability atop an already precarious landscape.
The dollar’s weakness has been most severe against the safe-haven currencies. The U.S. Dollar has even crumbled precipitously against the Japanese yen, Swiss franc, and euro. Further, the ICE U.S. Dollar Index is at its lowest point in three years. BlackRock CEO Larry Fink knew something was up when he started noticing a disturbing trend. He noted that dollar depreciation combined with increasing tariffs are changing preferences of investors.
“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,” – George Saravelos, Deutsche Bank strategist
Fink’s assertion points to a truly shocking epidemic. The large American companies with the best global brands are suffering discrimination in practice – our global brands are losing their shine abroad. This perception problem only adds to the real challenges U.S. assets face as they compete in an increasingly complex global marketplace.
We’ve done this kind of analysis across a lot of different markets. Tape bombing is certainly present there too, warns Neel Kashkari, president of the Minneapolis Federal Reserve. Foreign governments and institutions usually hold the bulk of foreign owned U.S. Treasuries. If they change their investment practices, getting fewer market participants as a result would have grave consequences.
As some economists maintain, confidence is an essential component to these boom-bust financial cycles. As Gennadiy Goldberg, head of U.S. rates strategy at TD Securities, put it succinctly. Just the prospect that foreign investors might start cashing in Treasuries is enough to induce widespread panic throughout the financial system.
“Markets are very confidence-driven. Even the perception that foreign investors are trying to step away from Treasury markets can trigger pretty significant panic,” – Gennadiy Goldberg, head of US rates strategy at TD Securities
The broader implications of these trends may suggest a fundamental reassessment of the U.S.’s economic position on the global stage. This week Marco Papic, a strategist at BCA Research, pointed to the tectonic shift away from U.S. assets as nothing short of a sea change. He characterized this development as a “vicious” cycle driven by elevated bond yields and a depreciating dollar.
“The big takeaway from this year… is that there’s a rotation out of the U.S… U.S. is the bubble,” – Marco Papic, BCA Research strategist
This tricky mix of bubbles at high rates makes outgoing economic policy arguably more important and future high growth potential more questionable. Increasing inflation attributed to tariffs has investors rethinking their approach amid these developing and changing conditions.