“Buy Less” is not just a fad in America.
Since President Donald Trump’s tariff event in the Rose Garden on April 2 stunned international markets, investors have been fearing a “Sell America” trade in which foreigners dump the dollar and U.S. government bonds.
However, preliminary evidence indicates that foreigners have been merely purchasing less new U.S. debt than they did previously, rather than abruptly boycotting Treasury auctions.
According to Guy LeBas, chief fixed income strategist at Janney Capital Management, new information about a Treasury auction of 3-year notes amid the recent volatility indicates that foreigners only grabbed around 7% of the offering, compared to a long-term average of roughly 12.4%.
LeBas stated that the 3-year results were a stronger indicator of demand for shorter-term paper, which is often preferred by foreign central banks, even though the more quiet 10-year BX:TMUBMUSD10Y and 30-year Treasury auctions from the same turbulent stretch helped to calm investors.
Treasury rates may continue to rise as a result of more muted foreign demand, which might result in higher borrowing costs for Americans, businesses, and consumers. LeBas believes that other reasons, such as the absence of alternatives to Treasurys in international investment portfolios, indications of a faltering U.S. economy, and inflation concerns, will overwhelm any pockets of reduced overseas demand.
The U.S. economy declined for the first time in three years, according to a quarterly report released on Wednesday. “Unlike the supply shocks of the late ’70s and early ’80s, higher prices in 2025 will probably destroy demand,” LeBas told MarketWatch.
LeBas stated that while a recession is not certain, he believes tariff-related price hikes will have a negative impact on the economy and consumers and quickly become unsustainable.
Calmer Waters
Since Trump switched to a 90-day break in early April, which gives most nations more time to negotiate with the U.S. before fresh tariffs are imposed, markets have stabilized.
When compared to a basket of competing currencies, the ICE U.S. dollar index DXY ended April 4.4% weaker, reflecting the turbulent nature of the month, according to FactSet. In contrast to the S&P 500 index SPX, which saw a 0.8% fall following a prolonged rise as the month came to an end, the 30-year Treasury yield BX:TMUBMUSD30Y concluded the day at 4.68%, roughly 29 basis points above its low for the month.
According to BNY iFlow data, the dramatic outflows of foreign investors from Treasurys that were observed in early April also slowed as the turbulence abated.
The head of Vanguard’s U.S. Treasurys and TIPS, John Madziyire, stated that volatility will ultimately present chances. However, he added that the Trump administration’s decision to halt and reconsider tariffs was also influenced by recent volatile changes in bond yields.
According to Madziyire, further policy ambiguity is likely to cause additional unrest.
The safe-haven status of the dollar and Treasurys is not yet in jeopardy, according to Felipe Villarroel, a portfolio manager at TwentyFour at Vontobelt in Zurich. But after a “decade of everybody buying everything dollar-related,” he added, changes in asset allocation do appear possible, particularly as Europe concentrates on increasing defense spending.
Alternatives to debt-limitation?
Treasury auctions are important both domestically and internationally, but they are increasingly more important now that the United States has a significant budget deficit and must rely on issuing new debt to cover it.
According to Federal Reserve data, the overseas portion of the $28 trillion market was close to 30% at the end of 2024, down from over 50% in the late 2000s, indicating that demand for Treasurys abroad has been declining for years.
By bringing manufacturing back to the United States, Trump hopes that tariffs will lower the trade deficit and decrease demand for Treasurys abroad.
The Treasury Department announced Wednesday that it will auction $125 billion of Treasury securities with maturities of three, ten, and thirty years the following week. Additionally, it anticipates continuing to prioritize shorter-term issuance in the upcoming quarters.
The U.S. has some leeway under “extraordinary measures” to function while Congress deals with the most recent debt ceiling crisis, after it reached its $36.1 trillion borrowing limit in January. The problem is predicted to peak between August and November.
Legislators have already increased or suspended the cap, but a number of recent proposals would completely remove it, eliminating political brinksmanship and possibly giving the White House more borrowing authority.
The Treasury Borrowing Advisory Committee, which is still in the proposal stage, on Wednesday outlined three alternatives, two of which would grant the current administration more power to act, while pointing out a number of drawbacks to the ongoing congressional battles over the U.S. debt ceiling.
Although the debt ceiling has turned into a “political football,” Mark Malek, chief investment officer at Siebert, stated that any attempts to transfer authority from Congress to the president could result in a scenario where the “fox ends up guarding the henhouse.”
The Congressional Budget Office now estimates that spending to pay interest on the U.S. debt will reach $1.78 trillion in 2035, up from $952 billion in fiscal year 2025.
In addition to the volatility of April, Eric Stratmoen, a U.S. rates strategist at Payden & Rygel, stated that investors were attempting to determine the implications of recent developments for the Treasury market and the U.S.’s reputation abroad over the next ten to twenty years. “The answer,” he stated, “is investors are going to want more compensation.”
