The "Sell America" trade makes a comeback! Global funds reprice Washington policy risks, with the US dollar and US Treasury bonds bearing the brunt.

Successive policy signals from Washington are reigniting global bond and forex investors’ discussions about “selling America.” The change in the Fed Chair’s communication style and the Treasury’s intervention in the forex market, combined with the growing fiscal deficit and looming trade war concerns, have triggered a new wave of confidence shakeup over US assets.

Latest developments show that Fed Chair Walsh now tends toward reduced policy communication, raising doubts in the market regarding the Fed’s commitment to fighting inflation. At the same time, according to The Wall Street Journal, Trump has spoken with Walsh several times since his appointment, breaking the norm in recent years—although there is currently no evidence that they discussed interest rate matters. Meanwhile, Treasury Secretary Besant signed an approval for the US to assist Japan in intervening in the forex market to support the yen—marking the first such coordinated action in nearly 30 years and further putting downward pressure on the dollar.

These double shocks are already reflected in market pricing. Thirty-year US Treasury yields climbed above 5%, reaching their highest level since 2007, before easing back down. Since its June high, the Bloomberg Dollar Spot Index is down about 2%, with the dollar weakening against almost every G10 currency—an unusual divergence against a backdrop of high US interest rates.

Gama Asset Management’s global macro portfolio manager Rajeev De Mello stated that it is precisely because of policy uncertainty that he is selling US Treasuries and dollars. “Besant and Walsh are a double blow to global markets. Investors have no choice but to price their policy risks into the dollar and the US Treasury curve—this is the Trump administration premium.”

The “sell America” trade first drew attention in April last year when Trump announced tariffs, triggering simultaneous sell-offs in the dollar, US stocks, and US Treasuries. Although that wave quickly faded, it shook the long-standing market assumption—that the US could finance an ever-widening fiscal deficit indefinitely, thanks to the dollar’s reserve status and deep capital markets.

This time the situation is more complex. US equities, led by tech stocks, have driven the S&P 500 to new record highs, and a broad crash has not occurred. Foreign holdings of US Treasuries reached $9.4 trillion as of May, up 4% from a year earlier, indicating that overall confidence still exists.

However, some global investors in the bond and forex markets are adjusting their positions.

Carol Lye, fund manager at Brandywine Global Investment Management in Singapore, said the company is holding a medium-term short position on the dollar, “Besant is now stepping forward to say the yen should rise, which reinforces our weak dollar outlook.” She also noted that the “confusing messages” from Washington are not conducive to capital flows into the United States.

One of the market’s main worries is whether the Fed under Walsh can effectively anchor inflation expectations. Analysts believe that once the Fed lags behind the rate hike cycle, the long end of the yield curve will face further upward pressure.

Bloomberg Economics research shows that the 30-year US Treasury term premium—the additional return investors demand for holding longer-term bonds—rose to 1.56% this week, the highest since 2013. Allianz Global Investors (with €598 billion in assets under management) currently favors yield curve steepener trades, focused on five- to seven-year maturities against the 30-year bond.

Senior portfolio manager Ranjiv Mann at the firm stated, “The risk is that the Fed could fall behind the curve in the hiking cycle, uncoupling long-term yields even more, at a time when America’s fiscal challenges are already severe.” Meanwhile, the Treasury this week raised its projected borrowing for the quarter to $739 billion, with the market generally expecting a continuation of issuance focused on short-term Treasury bills, sustaining the supply pressure.

The US assisting in forex market intervention is prompting investors to reassess the dollar’s structural trends.

Besant, in a CNBC interview, defended the move, saying yen depreciation could trigger broader declines in Asian currencies. Washington would “do whatever it takes” to support Japan in ways favorable to the US economy and to global market stability.

This round of intervention was executed by buying euros and selling dollars to purchase yen, aiming to avoid directly impacting the US Treasury market. Besant described this as a “reallocation of reserves.” However, market participants caution that if Japan—the largest foreign holder of US Treasuries with more than $1 trillion in holdings—is forced to sell some Treasuries to fund intervention, knock-on effects could still spill over into the US Treasury market.

Standard Chartered’s Global Chief Investment Officer of Wealth Management, Steve Brice, expects the dollar to fall by about 3% to 4% in the next 12 months, “Government actions and other factors are gradually eroding the structural advantages of the US market.”

Several strategists emphasize that no one is predicting an end to the dollar’s global reserve currency status or the loss of US Treasuries’ status as the world’s benchmark risk-free asset at this time.

PIMCO multi-asset credit strategist Lotfi Karoui pointed out in a research note that US assets still have broad appeal for foreign buyers, with the lack of large-scale, coordinated sell-offs serving as evidence. Since the beginning of this year, only about 2% of trading days have seen 10-year Treasury yields, US investment-grade corporate credit spreads, and the dollar all fall in tandem. “If faith in America’s exceptionalism really faltered, these synchronized sell-offs would happen much more frequently.”

But Lazard Chief Market Strategist Ronald Temple notes that the core risk lies in the fact that the pace of foreign purchases of US Treasuries can no longer keep up with the speed at which the US is accumulating debt. In an interview with Bloomberg Television, he said, “The confidence backdrop surrounding America’s safe asset status is changing, and there are a lot of questions. In the coming years, dollar depreciation will re-emerge.”