Global investors shift from U.S. bonds amid trade war and rising deficit

Financial times

Major investors are reallocating from U.S. Treasuries to international bonds due to concerns over America's fiscal policies, including escalating deficits and trade tensions. European, Japanese, and Australian markets are gaining favor as the dollar weakens and U.S. yields rise.

Investors are increasingly shifting their bond portfolios away from U.S. Treasuries, citing concerns over President Donald Trump's fiscal policies, including a substantial tax bill and escalating trade tariffs. These measures are expected to significantly increase the national debt, undermining the traditional perception of U.S. government bonds as safe-haven assets.


The recent passage of Trump's expansive tax bill is projected to add $3.8 trillion to the existing $36 trillion U.S. national debt over the next decade. This development has led to a sell-off in global bond markets, with long-term U.S. Treasury yields surging; the 30-year yield recently peaked at 5.13%, the highest since October 2023.


In response to these fiscal concerns, major investment firms such as Amundi, JPMorgan Asset Management, and Goldman Sachs Asset Management are advocating for diversification into international markets. European, Japanese, and Australian bonds are gaining attention due to their strong returns and stable economic outlooks.


The U.S. dollar has also weakened, dropping 8% this year against six major peers, further diminishing the appeal of U.S. assets. Analysts suggest that unless significant fiscal reforms are implemented, the dominance of U.S. bonds in global portfolios may continue to wane.

 

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