Amid the ongoing tariff disputes instigated by Donald Trump, global equity markets have been experiencing significant downturns. Unexpectedly, a notable change is underway in the behavior of US Treasuries, typically considered a reliable safe-haven asset.
In times of economic uncertainty, investors typically seek refuge in bonds, causing their yields to decrease as they move away from riskier assets like stocks. However, the current scenario is the opposite of this norm.
Recently, the 10-year yield surged by 10 basis points to 4.40%, marking a total increase of 50 basis points over the last three trading days. Conversely, the benchmark 10-year Treasury note saw a decline of over 3% in terms of price, experiencing its worst performance week since last August.
This unexpected shift in movement has given rise to doubts among investors regarding the dependability of Treasuries during times of heightened uncertainty. Analysts attribute this trend to the diminishing "US exceptionalism trade".
The escalation of the trade war between the US and China has exacerbated the situation. President Trump announced significant tariff hikes on all trading partners, including an imposing 104% increase on Chinese goods. In response, Beijing imposed an 84% tariff on selected US exports, intensifying concerns about the potential economic separation between the two major economies.
These developments have unsettled investors who would typically flock to Treasuries in such turbulent times. The longstanding belief in US economic dominance and stability is being challenged by the current protectionist policies, tariffs, and declining confidence in US institutions.
Consequently, not only Treasuries but other American financial assets are also feeling the impact of this shift. US equities, historically popular among global investors, are experiencing substantial capital outflows. The once-stable US dollar is also struggling amidst this turmoil.
Goldman Sachs strategist Michael Cahill labeled this situation as the "crisis of the US exceptionalism trade."