Trump Policies Spark 4.3% U.S. Treasury Yield Surge, Dollar Stability in Question

In recent times, global investors have expressed growing concerns over the stability of the U.S. dollar as a safe-haven asset. This unease has been exacerbated by the Trump administration's tariff policies and persistent pressure on the Federal Reserve, leading to a noticeable trend of investors selling off all their dollar-denominated assets. This shift has been evident in the continuous decline of U.S. stocks and traditional safe-haven assets, signaling a potential liquidity shock.

The recent "stock, bond, and currency" triple decline in the U.S. has further highlighted the liquidity shock, as global funds increasingly worry about the credibility of the dollar as a safe asset. This situation has exposed structural vulnerabilities within the U.S. dollar's credit system, raising questions about its long-term stability.

The Trump administration's policies, particularly the imposition of tariffs, have had a significant impact on global capital flows. Trump's repeated threats to fire Federal Reserve Chairman Jerome Powell and his demands for interest rate cuts have added to the uncertainty, making the already weak dollar index even more precarious. The administration's actions have led to a situation where the U.S. government's fiscal policies are under intense scrutiny, with concerns about the sustainability of its debt management practices.

The U.S. government's fiscal situation is characterized by a high level of debt and a significant budget deficit. The country's debt has reached $36.1 trillion, with annual debt repayments ranging from $7 trillion to $8 trillion. The government's fiscal income for 2024 is estimated to be $4.9 trillion, while its expenditure is projected to be $6.8 trillion, resulting in a fiscal deficit of $1.8 trillion. This situation necessitates continuous borrowing, which is unsustainable in the long run.

Trump's attempts to address the fiscal crisis through measures such as government downsizing, selling immigration visas, and increasing tariffs have had mixed results. The downsizing efforts, led by Elon Musk, have shown some progress but have not been as effective as hoped. The sale of immigration visas, priced at $500,000 each, has faced skepticism both domestically and internationally. The tariff increases, while initially seen as a strategic move, have had unintended consequences, including a surge in U.S. Treasury yields.

The tariff war initiated by Trump led to a rapid increase in U.S. Treasury yields, with the 10-year Treasury yield rising from 4.0% to 4.3% and the 30-year yield reaching 5.0%. This increase indicated significant selling pressure on U.S. Treasuries, raising concerns about a potential collapse of the U.S. debt market. The situation prompted Trump to temporarily halt the tariff war, but the high yields persist, reflecting ongoing investor concerns.

The current fiscal and monetary policies of the U.S. government have created a challenging environment for the dollar. The continuous borrowing and high deficits, coupled with the administration's unconventional policies, have raised questions about the sustainability of the U.S. dollar as a global reserve currency. Investors are increasingly wary of the risks associated with holding dollar-denominated assets, leading to a trend of selling off these assets in favor of other safe-haven investments. The situation underscores the need for a more stable and predictable fiscal and monetary policy framework to restore confidence in the U.S. dollar.