The 'Sell America' debate has re-emerged among global bond and currency investors following recent US economic policy decisions. Federal Reserve Chair Kevin Warsh's sparse communication has raised concerns about the central bank's commitment to fighting inflation, especially after an unusually high number of officials favored an immediate interest-rate hike. Compounding this, Treasury Secretary Scott Bessent sanctioned US support to help Japan prop up the yen—a coordinated effort not seen in almost 30 years. This intervention, though executed via the euro to avoid disrupting the Treasury market, risks pressuring the dollar.
These policy decisions, combined with ongoing fiscal concerns, a trade war, and the Middle East conflict, are leading some market participants to reassess their appetite for US bonds and the dollar. The 30-year Treasury yield recently surged above 5% to its highest since 2007, and the dollar has weakened against nearly all Group-of-10 currencies over the past month, despite higher US yields that would typically offer support. Rajeev De Mello, global macro portfolio manager at Gama Asset Management, commented that "Bessent and Warsh are a double whammy to global markets that investors can't ignore," leading him to sell Treasuries and the dollar due to policy uncertainty.
The initial "Sell America" trade gained traction in April of last year when President Donald Trump's tariff announcements caused a simultaneous sell-off in the dollar, stocks, and US government bonds. Although that move was short-lived, it challenged the perception that the US could perpetually rely on the dollar's reserve-currency status and deep capital markets to finance widening fiscal deficits. Carol Lye, a money manager at Brandywine Global Investment Management, notes that this "mix of confusing messages does not help capital flows into the US," and her firm holds a medium-term bearish dollar position, expecting it to weaken further.
Despite these concerns, US stocks remain resilient, with a technology-driven rally pushing the S&P 500 to a record high. Foreign investors held $9.4 trillion in Treasuries as of May, a 4% increase from the previous year, suggesting continued confidence in US assets. However, some global investors warn that the Fed risks losing control of the debt market without a clearer inflation strategy. Skylar Montgomery Koning, a Markets Live strategist, highlighted that "Washington has an incentive to limit forced bond sales" given the pressure on Treasury yields. The term premium on 30-year Treasuries, an indicator of extra yield demanded by investors for long-dated debt, has risen to 1.56%, its highest since 2013.
Allianz Global Investors, managing 598 billion euros ($690 billion), is favoring yield-curve steepener trades, specifically in five- and seven-year maturities against 30-year bonds, anticipating pressure on longer-dated Treasuries due to the Fed's marginally dovish stance. The Treasury recently raised its estimated borrowing needs for the current quarter to $739 billion, and market participants expect a continued strategy of bill-heavy issuance. Steve Brice, global chief investment officer at Standard Chartered, anticipates a 3% to 4% fall in the dollar over the next 12 months, attributing it to government actions and other factors eroding the structural strength of US markets.
