Bloomberg: ‘Sell America’ debate re-emerges as US policies sow some doubts

Global bond and currency investors are debating if it’s time to dust off last year’s ‘Sell America’ trade after a flurry of economic-policy decisions out of Washington over the past two weeks, Bloomberg notes.

First, Federal Reserve Chair Kevin Warsh’s preference for sparse communication cast doubt on the central bank’s commitment to fighting inflation. The Wall Street Journal also reported that President Donald Trump has spoken repeatedly with Warsh since he became chair, maintaining a line of communication that departs from recent precedent, though there is no indication they discussed interest rates.

Next, Treasury Secretary Scott Bessent signed off on US support to help Japan prop up the yen — the first such coordinated effort in almost 30 years. While the intervention was carried out via the euro and designed to avoid disrupting the Treasury market, it still risks putting pressure on the dollar.

With fiscal concerns, a trade war and the ongoing conflict in the Middle East also threatening to underpin inflation, some in markets are starting to reassess their taste for US bonds and the dollar amid concern that Washington’s policy is again becoming hard to decipher.

The 30-year Treasury yield has risen above 5% to its highest since 2007 although has retraced some of its move since the Fed meeting, while the dollar has weakened against almost every Group-of-10 currency over the past one month despite higher US yields, which would normally support it.

“Bessent and Warsh are a double whammy to global markets that investors can’t ignore,” said Rajeev De Mello, global macro portfolio manager at Gama Asset Management, who is selling Treasuries and the dollar partly because of the policy uncertainty.

“They have to start pricing risks of their policies into the dollar, into the Treasuries curve, and in fact, they’re doing it right now. It’s the Trump administration premium,” he said.

The “Sell America” trade gained traction April last year, when Trump’s tariff announcements triggered a simultaneous selloff in the dollar, stocks and US government bonds. While the move quickly faded, it challenged the assumption that the US could indefinitely rely on the dollar’s reserve-currency status and deep capital markets to finance widening fiscal deficits.

This time, the picture is more nuanced. US stocks remain resilient, with a rally in technology stocks pushing the S&P 500 to a record high. Flows also suggest ongoing faith in the US. Foreign investors held $9.4 trillion of Treasuries as of May, up 4% from a year earlier, according to US government data.

But in bonds and currencies, some global investors warn the Fed risks losing its grip on the debt market without a clearer inflation strategy, while any direct US effort to support the yen weakens the dollar. That could also spill over into Treasuries if Japan — the largest foreign holder of US government debt — is forced to sell part of its more than $1 trillion holdings to fund intervention.

“This whole mix of confusing messages does not help capital flows into the US,” said Carol Lye, money manager at Brandywine Global Investment Management in Singapore.

“There are just a lot of questions swirling around a changing backdrop for confidence in the US as the safe haven asset,” Ronald Temple, chief market strategist for Lazard’s Financial Advisory and Asset Management businesses, said in a Bloomberg TV interview this week.

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