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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.
M* published a good article today regarding the U.S. dollar.
Key Takeaways
• After the dollar’s steepest half-year drop in decades, investors see continued declines ahead. • Receding confidence in the dollar is driving investors to sell dollars and buy gold and other major currencies. • The dollar is unlikely to lose its dominance quickly, even as China’s central bank boosts the yuan.
“'International investors have become skeptical of the dollar as public debt continues to rise and the White House aggressively pushes for a policy of ‘easy money.’ In addition, concepts such as ‘revenge tax’ or the ‘Mar-a-Lago Agreement’ make international investors uncomfortable,' explains ODDO BHF Chief Investment Officer Jan Viebig.”
Instead of the above thinking, a better way is to look at relativity and how to make money.
After the dollar’s steepest half-year drop in decades, investors see continued declines ahead.
The 24/7 media always love to make statements like this. Let's look deeper: 1) During 2020, the dollar fell more than in 2025. 2) The Dollar is still 45% ahead since 2014, including the last decline. See the chart (https://schrts.co/BxMautbM)
Receding confidence in the dollar is driving investors to sell dollars and buy gold and other major currencies.
Gold usually goes up when the dollar declines; nothing new here.
The dollar is unlikely to lose its dominance quickly
I doubt the dollar will lose its dominance. Is the euro going to take over? Europe has been in decline for at least 10-15 years. China? Can anyone trust them? No one else is big enough.
The dollar's decline means that international will do better. Already in mid-February, the charts showed that VGK (Europe) + VXUS (international) are doing better. See the chart (https://schrts.co/egMBCBBW). All you had to do is buy more of what is doing better.
Bonds follow the same plan. See the chart (https://schrts.co/YvzfUvjq). As a mainly bond trader, for the first time in my life I own a huge % in international bonds. My job is to invest based on current markets; I don't invest based on politics or narrative.
So, what to do next? Follow the markets, AKA current charts and prices.
The referenced M* article examines the U.S. Dollar situation objectively. I don't understand why certain people become so defensive when factual data is presented. These same people will often try to be clever by cherry-picking random data and ignoring the big picture in a feeble attempt to "prove" their case. Information regarding the shifting landscape for the U.S. Dollar could be very useful for investors. This information should not be viewed strictly via a partisan political lens.
Enigma: Why would anyone constantly tout their peculiar "investing system" and proffer, in effect, the same unsolicited advice repeatedly? I'm fairly certain most forum participants are not interested in reading the same commentary ad nauseam!
The referenced M* article examines the U.S. Dollar situation objectively.
I never claimed it didn't I just made extra observations and put it in a broader context and history. The 24/7 media love to tell bad/sad stories because you click and read, and they make money.
Information regarding the shifting landscape for the U.S. Dollar could be very useful for investors.
And I made observations about that too...and what to do.
Enigma: Why would anyone constantly tout their peculiar "investing system" and proffer, in effect, the same unsolicited advice repeatedly? I'm fairly certain most forum participants are not interested in reading the same commentary ad nauseam!
Everyone has their own style of investing. Some hardly touch their portfolios, some trade weekly, and many like to post about it. That’s exactly what this site is for—sharing opinions and perspectives. If something doesn’t resonate with you, you can simply move on. Was my post "the same commentary ad nauseam!"? No, for the first time in my life, my portfolio is invested mostly abroad.
I’ve said it before: my approach isn’t for everyone, and I’ve never claimed otherwise.
One of the best contributors here is Charles Lynn Bolin—he does a fantastic job analyzing the market each month according to his style and sometimes adds thoughtful commentary during the month. Does it bother me? Not at all. I read, think critically, and decide what fits my strategy.
Lastly, I never singled you out or criticized you personally in this thread. You, on the other hand, have done exactly that. Let’s stay focused on ideas, not on attacking others for having a different view.
"If something doesn’t resonate with you, you can simply move on."
You should take your own advice to heart! It might be best to remain silent instead of posting irrelevant, deceitful, or highly repetitious information. Please be reasonable for a change and see things my way.
M* published a good article today regarding the U.S. dollar.
Key Takeaways
• After the dollar’s steepest half-year drop in decades, investors see continued declines ahead. • Receding confidence in the dollar is driving investors to sell dollars and buy gold and other major currencies. • The dollar is unlikely to lose its dominance quickly, even as China’s central bank boosts the yuan.
“'International investors have become skeptical of the dollar as public debt continues to rise and the White House aggressively pushes for a policy of ‘easy money.’ In addition, concepts such as ‘revenge tax’ or the ‘Mar-a-Lago Agreement’ make international investors uncomfortable,' explains ODDO BHF Chief Investment Officer Jan Viebig.”
An 11% decline YTD is pretty significant. It really erodes import buying power. Having gone from 110 to 97 in only six months is impossible to ignore. Now add to that, tariffs from 10-30% or more, and you get some serious loss of buying power.
This should be very concerning, especially to those who are conscientious about their spending. Lower income folks and retirees, for instance. And it certainly makes buying dollar-denominated debt less attractive. Even when/if the FED lowers rates, I'd expect that bond vigilantes, foreign and domestic, will demand higher rates on the long end of the curve.
Losing dollar dominance may not happen quickly, but swift erosion is not good. And this has been a steep and quick decline. What are the conditions that are in place to reverse this trend, would be a valid question. From an investor standpoint what is the positive news over the short/medium term?
What encourages investors to buy (add to) stocks (or bonds) at this point? Is anyone here increasing stock or bond allocations? If so, what is your rationale?
>>>>What encourages investors to buy (add to) stocks (or bonds) at this point? Is anyone here increasing stock or bond allocations? If so, what is your rationale?<<<<
What can’t be ignored is we just had a 25%+ gain in the S@P over a three month period. A rare event that has only occurred five times since 1950. Most recently in 2020 and 2009 when things looked pretty bleak just as many think things look pretty bleak now. After those 3 month 25% gains going forward another year out all previous periods were positive with average gain of another 22%. So stay tuned. Listen to the signals not the headlines. Back in April all sorts of rare bullish signals kicked in but everyone seemed more focused on the negative headlines.
I'm very concerned about the potential negative consequences associated with several recent policies. Since my portfolio allocation and investments are (mostly) satisfactory, no corresponding changes were made.
The VIX closed above 52 on 4/8/2025. Since 1990, forward S&P 500 total returns for 1 yr., 2 yr., 3 yr., 4 yr., and 5 yr. were always positive whenever the VIX closed above 50.
"If something doesn’t resonate with you, you can simply move on."
You should take your own advice to heart! It might be best to remain silent instead of posting irrelevant, deceitful, or highly repetitious information. Please be reasonable for a change and see things my way.
Can you prove where I said on this thread..."irrelevant, deceitful, or highly repetitious information"?
===============================
It is your choice to be concerned. Investors who rely on markets noticed last April strong buy signals. VIX+MOVE = stocks + bonds volatility are low. These are just 2 of the first signals I watch. In addition, the trends are intact and going up nicely...until they won't. See the chart below. Politics and/or policies must be reflected in the markets; otherwise, I disregard them.
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.
Key Takeaways
• After the dollar’s steepest half-year drop in decades, investors see continued declines ahead.
• Receding confidence in the dollar is driving investors to sell dollars and buy gold and other major currencies.
• The dollar is unlikely to lose its dominance quickly, even as China’s central bank boosts the yuan.
“'International investors have become skeptical of the dollar as public debt continues to rise
and the White House aggressively pushes for a policy of ‘easy money.’
In addition, concepts such as ‘revenge tax’ or the ‘Mar-a-Lago Agreement’
make international investors uncomfortable,' explains ODDO BHF Chief Investment Officer Jan Viebig.”
https://www.morningstar.com/markets/how-low-can-dollar-go
1) During 2020, the dollar fell more than in 2025.
2) The Dollar is still 45% ahead since 2014, including the last decline.
See the chart (https://schrts.co/BxMautbM) Gold usually goes up when the dollar declines; nothing new here. I doubt the dollar will lose its dominance.
Is the euro going to take over? Europe has been in decline for at least 10-15 years.
China? Can anyone trust them?
No one else is big enough.
The dollar's decline means that international will do better.
Already in mid-February, the charts showed that VGK (Europe) + VXUS (international) are doing better. See the chart (https://schrts.co/egMBCBBW). All you had to do is buy more of what is doing better.
Bonds follow the same plan. See the chart (https://schrts.co/YvzfUvjq).
As a mainly bond trader, for the first time in my life I own a huge % in international bonds. My job is to invest based on current markets; I don't invest based on politics or narrative.
So, what to do next? Follow the markets, AKA current charts and prices.
I don't understand why certain people become so defensive when factual data is presented.
These same people will often try to be clever by cherry-picking random data
and ignoring the big picture in a feeble attempt to "prove" their case.
Information regarding the shifting landscape for the U.S. Dollar could be very useful for investors.
This information should not be viewed strictly via a partisan political lens.
Enigma: Why would anyone constantly tout their peculiar "investing system"
and proffer, in effect, the same unsolicited advice repeatedly?
I'm fairly certain most forum participants are not interested in reading the same commentary ad nauseam!
Some hardly touch their portfolios, some trade weekly, and many like to post about it.
That’s exactly what this site is for—sharing opinions and perspectives.
If something doesn’t resonate with you, you can simply move on.
Was my post "the same commentary ad nauseam!"? No, for the first time in my life, my portfolio is invested mostly abroad.
I’ve said it before: my approach isn’t for everyone, and I’ve never claimed otherwise.
One of the best contributors here is Charles Lynn Bolin—he does a fantastic job analyzing the market each month according to his style and sometimes adds thoughtful commentary during the month.
Does it bother me? Not at all.
I read, think critically, and decide what fits my strategy.
Lastly, I never singled you out or criticized you personally in this thread.
You, on the other hand, have done exactly that.
Let’s stay focused on ideas, not on attacking others for having a different view.
You should take your own advice to heart!
It might be best to remain silent instead of posting irrelevant, deceitful, or highly repetitious information.
Please be reasonable for a change and see things my way.
This should be very concerning, especially to those who are conscientious about their spending. Lower income folks and retirees, for instance. And it certainly makes buying dollar-denominated debt less attractive. Even when/if the FED lowers rates, I'd expect that bond vigilantes, foreign and domestic, will demand higher rates on the long end of the curve.
Losing dollar dominance may not happen quickly, but swift erosion is not good. And this has been a steep and quick decline. What are the conditions that are in place to reverse this trend, would be a valid question. From an investor standpoint what is the positive news over the short/medium term?
What encourages investors to buy (add to) stocks (or bonds) at this point? Is anyone here increasing stock or bond allocations? If so, what is your rationale?
What can’t be ignored is we just had a 25%+ gain in the S@P over a three month period. A rare event that has only occurred five times since 1950. Most recently in 2020 and 2009 when things looked pretty bleak just as many think things look pretty bleak now. After those 3 month 25% gains going forward another year out all previous periods were positive with average gain of another 22%. So stay tuned. Listen to the signals not the headlines. Back in April all sorts of rare bullish signals kicked in but everyone seemed more focused on the negative headlines.
Since my portfolio allocation and investments are (mostly) satisfactory, no corresponding changes were made.
The VIX closed above 52 on 4/8/2025.
Since 1990, forward S&P 500 total returns for 1 yr., 2 yr., 3 yr., 4 yr., and 5 yr.
were always positive whenever the VIX closed above 50.
https://www.youtube.com/watch?v=nVuZH3s5QfM
Refer to the segment from 4:30 - 7:15.
@junkster
I am unfamiliar with numerous signals.
If you don't mind sharing, I'm curious which bullish signals were present in April.
===============================
It is your choice to be concerned. Investors who rely on markets noticed last April strong buy signals.
VIX+MOVE = stocks + bonds volatility are low. These are just 2 of the first signals I watch.
In addition, the trends are intact and going up nicely...until they won't. See the chart below.
Politics and/or policies must be reflected in the markets; otherwise, I disregard them.
schrts.co/hXgZwsDw
https://www.nytimes.com/2025/07/11/opinion/dollar-money-currency-payment.html
https://www.nytimes.com/2025/05/05/opinion/weak-us-dollar.html
history:
https://www.nytimes.com/2025/06/22/opinion/happy-birthday-money.html