A generational shift in U.S. trade policy is prompting trading partners, who once found U.S. financial assets attractive, to increasingly look elsewhere for safe-haven assets or to seek the safety of cash, as they did during the pandemic.
While foreign purchases of Treasury securities remain stout, they have declined from a cyclical peak, with five-year bond yields falling since the beginning of the year.
Allotments on Wednesday’s five-year bond auctions increased but they remain soft—two-year debt allotments declined—and subject to risk because of the shift in trade policy, rising tensions around fiscal policy and the possibility of another debt-ceiling standoff.
As Congress debates another unfunded tax cut, global and domestic market participants may choose to push rates higher if it is interpreted as profligate fiscal policy.
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As the United States pulls…
