「Sell America」Trade Resurfaces: Global Capital Repricing Washington Policy Risk, Dollar and Treasuries Bear the Brunt
- Key Takeaways: The dual shock of reduced Federal Reserve policy communication and Treasury assistance in Japan's currency intervention, compounded by expanding fiscal deficits, is driving global investors to reignite the "Sell America" trade. Confidence in the dollar and Treasuries is wavering, though American exceptionalism has not yet run its course.
- Key Factors:
- Fed Chair Warsh's preference for reduced policy communication has raised doubts about his commitment to fighting inflation; Trump's multiple phone calls with him, breaking with recent convention, have added to policy uncertainty.
- Treasury Secretary Bessent approved the first U.S. assistance to Japan in nearly three decades for currency intervention to support the yen, further pressuring the dollar and prompting a reassessment of its structural outlook.
- The 30-year Treasury yield broke above 5%, hitting a high not seen since 2007; the Bloomberg Dollar Spot Index has fallen about 2% from its June peak, with the dollar weakening against all G10 currencies—an anomalous divergence from the backdrop of elevated U.S. interest rates.
- The 30-year Treasury term premium rose to 1.56%, the highest level since 2013; the Treasury raised its quarterly borrowing estimate to $739 billion, with supply pressure continuing to build.
- Foreign holdings of U.S. Treasuries reached $9.4 trillion as of May, up 4% from a year earlier, indicating overall confidence remains intact; only about 2% of trading days this year have seen simultaneous declines in Treasuries, credit spreads, and the dollar, with no signs of large-scale coordinated selling.
- Japan, as the largest foreign holder of U.S. Treasuries (with holdings exceeding $1 trillion), could transmit stress to the Treasury market if forced to sell bonds to raise funds for intervention; Standard Chartered projects the dollar will fall 3%-4% over the next 12 months.
Original Author: Xu Chao
Source: Wallstreetcn
A string of policy signals from Washington is reigniting the "sell the US" debate among global bond and FX investors. A shift in the Fed Chair's communication style, Treasury intervention in the FX market, combined with widening fiscal deficits and looming trade war clouds, are shaking market confidence in US assets once again.
The latest developments show Fed Chair Warsh is inclined to reduce policy communication, raising doubts about the Fed's commitment to fighting inflation. Meanwhile, according to The Wall Street Journal, Trump has spoken with Warsh multiple times since he took office, breaking with the convention of recent years—although there is currently no evidence that interest rates were discussed. Treasury Secretary Bessent has also signed off on US assistance for Japan's intervention in the FX market to support the yen, marking the first such coordinated action in nearly three decades and further pressuring the dollar.
These twin shocks are already reflected in market prices. The 30-year Treasury yield broke above 5%, hitting its highest level since 2007, though it has since pulled back; the Bloomberg Dollar Spot Index is down roughly 2% from its June peak, with the dollar weakening against nearly all G10 currencies—an unusual divergence given that US interest rates remain elevated.
Rajeev De Mello, global macro portfolio manager at Gama Asset Management, said it is precisely the policy uncertainty that has him selling US Treasuries and the dollar. "Bessent and Warsh are a double whammy for global markets, and investors are forced to price in their policy risks into the dollar and the Treasury curve—this is the Trump administration premium."
"Sell the US" Resurfaces, But Differs from Last Year
The "sell the US" trade first gained attention last April, when Trump announced tariffs, triggering a simultaneous sell-off in the dollar, US equities, and Treasuries. Although that episode quickly subsided, it shook the market's long-held assumption that the US could finance its ever-widening fiscal deficits indefinitely thanks to the dollar's reserve currency status and deep capital markets.
This time, the situation is more complex. In equities, strong tech stocks have pushed the S&P 500 to fresh record highs, and there has been no full-blown market collapse. Foreign holdings of US Treasuries reached $9.4 trillion as of May, up 4% from a year earlier, suggesting overall confidence remains intact.
However, some global investors in the bond and FX markets are adjusting their positions.
Carol Lye, Singapore-based portfolio manager at Brandywine Global Investment Management, said the firm holds a medium-term bearish position on the dollar. "Now Bessent is also coming out and saying the yen should strengthen, which will confirm our weak-dollar view." She also noted that the "confusing signals" coming out of Washington are not conducive to capital inflows into the US.
Credibility of the Fed in Question, Long-End Treasury Pressures Build
One of the core concerns is whether the Fed can effectively anchor inflation expectations under Warsh's leadership. Analysts believe that if the Fed falls behind the rate hike cycle, long-end yields will face further upward pressure.
According to Bloomberg Economics data, the term premium on 30-year Treasuries—the extra compensation investors demand for holding long-dated bonds—rose to 1.56% this week, its highest level since 2013. Allianz Global Investors (with €598 billion in assets under management) currently favors steepener trades, positioning in five- to seven-year notes against 30-year bonds.
Ranjiv Mann, senior portfolio manager at the firm, said, "The risk is that the Fed could fall behind the curve in the rate hiking cycle, and long-end yields could become even more unanchored, while the US already faces severe fiscal challenges." Meanwhile, the Treasury raised its quarterly borrowing estimate to $739 billion this week, and the market broadly expects authorities to continue a short-bill-heavy issuance strategy, with supply pressures steadily building.
Yen Intervention Sparks Debate Over Dollar Outlook
The US-assisted FX intervention has prompted investors to reassess the structural trajectory of the dollar.
Bessent defended the move in a CNBC interview, saying that persistent yen weakness could trigger broader depreciation across Asian currencies, and that Washington would do "whatever it takes" to support Japan in a way that benefits the US economy and stabilizes global markets.
The intervention was executed by buying euros and selling dollars to acquire yen, aiming to avoid directly impacting the Treasury market. Bessent described it as a "reconfiguration of reserves." However, market participants caution that if Japan—the largest foreign holder of US Treasuries, with over $1 trillion in holdings—is forced to sell some of its Treasury holdings to fund intervention, the spillover effects could still transmit to the Treasury market.
Steve Brice, global chief investment officer at Standard Chartered's wealth management division, expects the dollar to fall roughly 3% to 4% over the next 12 months, noting that "government actions and other factors are gradually eroding the structural advantages of US markets."
"US Exceptionalism" Not Over, but Risks Cannot Be Ignored
Several strategists stress that no one is currently predicting the end of the dollar's global reserve currency status, or that Treasuries will lose their standing as the global benchmark risk-free asset.
Lotfi Karoui, multi-asset credit strategist at Pacific Investment Management Company, noted in a research report that US assets remain broadly attractive to foreign buyers, as evidenced by the absence of large-scale correlated selling. So far this year, only about 2% of trading days have seen simultaneous declines in 10-year Treasury yields, US investment-grade corporate bond spreads, and the dollar. "If there were a genuine loss of confidence in US exceptionalism, such correlated selling should occur more frequently," he wrote.
But Ronald Temple, chief market strategist at Lazard, pointed out that the core risk is that foreign buying of US Treasuries can no longer keep pace with the pace of US borrowing expansion. In a Bloomberg TV interview, he said, "The confidence backdrop around the safe-haven status of US assets is shifting, and there are a lot of questions. Over the coming years, the dollar's depreciation trend will re-emerge."
