Investors are freaked out right now about a possible uncontrolled exit from U.S. assets as financial markets are battered by formidably rising stresses. The ICE U.S. Dollar Index has recently cratered to its lowest level in three years. This decline indicates an important reversal of investor sentiment. Ever since President Donald Trump’s tariff announcement caused the market to panic on April 2nd, the S&P 500 has fallen 5.4%. This substantial downturn marked a bumpy beginning to 2025’s stock market performance.
The drop in the U.S. financial markets has not just focused on equities. As just one example, after a rare period of stability, all major asset classes—including the dollar and Treasuries—have started faltering in the last seven trading days. The yield on the benchmark 10-year Treasury briefly hit 4.5%, a significant jump from 3.99% just a week earlier. This increase in yields indicates that the U.S. government will face higher interest obligations on any debt it rolls over or issues for new spending.
The rising Treasury yields raise concerns about the federal deficit, as the U.S. grapples with implications for its financial standing. According to some analysts, the combination of these high yields with a declining dollar indicates a rotation out of U.S. markets. Marco Papic, a strategist at BCA Research, commented on the shifting dynamics:
“The big takeaway from this year, from the Trump presidency, from everything that’s happened, is that there’s a rotation out of the U.S. And obviously that’s become vicious now — with bond yields staying high and the dollar falling, it’s become the story.” – Marco Papic, BCA Research strategist
Unfortunately, the U.S. is currently engaged in a costly and complicated trade dispute that may negatively harm large American companies with substantial overseas sales. The U.S. dollar historically benefits from such safe-haven flows when crises erupt. All of that seems to be changing. Gennadiy Goldberg leads U.S. rates strategy at TD Securities. He warns that if foreign investors retreat from Treasury markets, it will be the trigger for a herd of panicked horses.
It has led many analysts to question the structural attractiveness of the dollar as the world’s reserve currency in light of these developments. George Saravelos, a strategist at Deutsche Bank, noted:
“The market is re-assessing the structural attractiveness of the dollar as the world’s global reserve currency and is undergoing a process of rapid de-dollarization.” – George Saravelos, Deutsche Bank strategist
The indirect consequences of increasing tariffs have further added to inflationary pressures in the economy. A recent survey conducted by the University of Michigan underscored a surge in inflation directly linked to these tariffs. Jim Bianco, president of Bianco Research, remarked:
“It’s about what’s coming next, and that’s tariff driven inflation. And that has changed the dynamic within the bond market.” – Jim Bianco, president of Bianco Research
Uncertainty still looms over U.S. economic policy and its ability to turn the tide with inflation. As IBB’s Joel Griffith and Stephen Moore explain, the government’s room to maneuver on these big challenges keeps shrinking. The surging Treasury yields limit the U.S. administration’s ability to push for expansionary fiscal policies that would fuel much-needed growth.
Larry Fink, CEO of BlackRock, expressed concern over the current state of U.S. businesses:
“A lot of our big companies that have great brands overseas are being discriminated against… We have a big image issue right now.” – Larry Fink, BlackRock CEO
The persistent storm in financial markets is part of a deeper malaise of U.S. asset confidence among investors. Neel Kashkari, president of the Minneapolis Federal Reserve, noted:
“Normally, when you see big tariff increases, I would have expected the dollar to go up. The fact that the dollar is going down at the same time I think lends some more credibility to the story of investor preferences changing.” – Neel Kashkari, Minneapolis Fed president
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