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Global Investors Have New Reason To Pull Back From U.S. Debt
Foreigners hold approximately 25% of Treasuries and also lend significant amounts to U.S. corporations. Treasuries are now less attractive to some of these entities due to the weaker USD and rising hedging costs.
We have been rebalancing more to oversea since January this year in both stocks and bonds. So far so good, particularly stocks. Treasuries are much less attractive as the debt piles on. Recently poor auction among long treasury notes tells it all.
Diversifying across both asset classes really pay off this year. It is the uncertainty that magnified the divergent, and the US vs developed market index is over 15 % difference! Fact is the dollar fell over 9% since last December and one to examine why. If American Exceptionalism is alive and well, where is it now? Think there are more compelling opportunities elsewhere.
We have been rebalancing more to oversea since January this year in both stocks and bonds. So far so good, particularly stocks. Treasuries are much less attractive as the debt piles on. Recently poor auction among long treasury notes tells it all.
Same. Most of my recent purchases/reallocations have been overseas.
The U.S. dollar index (USDX) is calculated by factoring in exchange rates for the euro (EUR), Japanese yen (JPY), Canadian dollar (CAD), British pound (GBP), Swedish krona (SEK), and Swiss franc (CHF). The dollar index declined more than 10% thus far in 2025 which is the worst start to the year since 1973 when Bretton Woods ended. The tariff war, concerns about excessive debt (big, beautiful tax bill), and worries regarding the Federal Reserve's independence have weakened the dollar's appeal as a safe haven.
Just for the sake of argument/debate, and feel free to disagree, but doesn't a weaker dollar have certain advantages? One of them being that it makes our exports more affordable, thus more desirable? And, as far as domestic transactions, does dollar depreciation really matter? It being a ForEx situation.
Now on the flip side, it does make our debt less attractive to foreign buyers. But, they were buyers at much lower rates over the past 10 years. And, as we all expect rates to be brought down sooner than later, is it not possibly a good time to buy bonds overall?
Of course, a much bigger problem is we then see imports being more expensive, at the same time that Trump applies tariffs on nearly everything, adding to the problem. And wouldn't the rate cuts that Trump so desperately wants, make our debt even less attractive? Or is it possible that even with rate cuts on the short end, auction buyers will support continued high rates at the long end, regardless of FED actions? Which would not help our debt servicing situation? But, it would support a healthy yield curve.
It is so complex, I'd like to hear more of what others think.
Yes, a weaker dollar does have certain advantages. It will be beneficial for U.S. multinational corporations with significant foreign revenue. The U.S. dollar's status as the preeminent global reserve currency is not in jeopardy.
Edit/Add: A weaker dollar can hinder foreign investment in the US. Treasuries became unappealing to Japanese investors after hedging costs were factored in—even though they yielded more than equivalent Japanese government bonds.
Comments
The dollar index declined more than 10% thus far in 2025 which is the worst start to the year since 1973
when Bretton Woods ended. The tariff war, concerns about excessive debt (big, beautiful tax bill),
and worries regarding the Federal Reserve's independence have weakened the dollar's appeal as a safe haven.
Hopefully article isn't paywalled.
https://www.ft.com/content/59c07f63-3331-462b-b9e3-d1bcaea69fce
Now on the flip side, it does make our debt less attractive to foreign buyers. But, they were buyers at much lower rates over the past 10 years. And, as we all expect rates to be brought down sooner than later, is it not possibly a good time to buy bonds overall?
Of course, a much bigger problem is we then see imports being more expensive, at the same time that Trump applies tariffs on nearly everything, adding to the problem. And wouldn't the rate cuts that Trump so desperately wants, make our debt even less attractive? Or is it possible that even with rate cuts on the short end, auction buyers will support continued high rates at the long end, regardless of FED actions? Which would not help our debt servicing situation? But, it would support a healthy yield curve.
It is so complex, I'd like to hear more of what others think.
It will be beneficial for U.S. multinational corporations with significant foreign revenue.
The U.S. dollar's status as the preeminent global reserve currency is not in jeopardy.
Edit/Add: A weaker dollar can hinder foreign investment in the US.
Treasuries became unappealing to Japanese investors after hedging costs
were factored in—even though they yielded more than equivalent Japanese government bonds.