The global capital shift after the tariff war and the fluctuating policies of Trump: Has the safe-haven status of U.S. Treasury bonds loosened?

In recent months, the "reciprocal tariff" policy promoted by U.S. President Trump has triggered turbulence in the financial markets. Surprisingly, U.S. Treasury bonds have fallen in tandem with the stock market and Crypto Assets. This rare phenomenon has shaken market confidence in the safety of U.S. Treasury bonds and prompted investors to rethink the structure of global safe-haven assets.

( The market value of gold reaches a new high of 20 trillion USD, are US Treasury bonds becoming increasingly distant from "safe haven"? )

U.S. Treasury Bonds Are No Longer "Rock Solid": Unusual Trends Amid Market Turbulence

Bloomberg recently expressed concern with the title "Are U.S. Treasuries Losing Their Safe Haven Appeal?" regarding the U.S. Treasuries, which have long been considered a "risk-free asset," but recently failed to function as a safe haven during global market turbulence.

The scale of the U.S. Treasury bond market has reached 29 trillion USD, serving as the pricing basis for global financial assets such as stocks and collateral. However, recent price fluctuations resemble those of emerging market debt.

Former U.S. Treasury Secretary Lawrence Summers described it as "no longer resembling advanced country bonds." The report's investors and analysts also summarized the following main reasons for this.

Inflation pressure intensifies

The reciprocal tariff policy implemented by Trump, especially the high tariffs imposed on automobiles, steel, aluminum, and other goods from countries such as China, Canada, and Mexico, has raised market concerns about inflation:

Companies ultimately pass the costs onto consumers, driving up prices and reducing the attractiveness of fixed-income U.S. Treasuries.

In addition, if the economy falls into "stagflation ( high inflation accompanied by economic stagnation or recession )", the Federal Reserve ( Fed ) will face a dilemma between supporting economic growth or curbing inflation, further exacerbating market uncertainty.

The new trend of hedging is cash is king.

At the same time, some investors are turning to cash or cash-like assets, such as money market funds in various countries, which have become the ultimate safe haven in the current turbulent market conditions:

With the Fed delaying interest rate cuts, the asset size of money market funds hit a historic high in the week of April 2, indicating strong inflows.

( Berkshire stock price reached a new high again, will Buffett buy the dip with his cash or hold onto US Treasuries tightly? )

Trump's policy has become a hidden concern due to its ups and downs.

Trump's radical tariff policies and his unpredictable political style make it difficult for investors to assess the investment environment in the United States for the coming year:

Trump challenges the authority of the Fed and the judicial system, deepening investors' concerns about the stability of the U.S. system, further weakening the appeal of U.S. bonds as a safe-haven investment for foreign capital.

(Trump once again criticizes Powell, funds are fleeing US assets, Bitcoin remains stable at 87K)

The deterioration of the fiscal deficit has caused a loss of confidence.

The U.S. debt-to-GDP ratio has reached a historic high of 121%, and Trump's tax reform policy may exacerbate the deficit, with the market concerned that his tax cuts could further increase the size of national debt. As Mike Riddell, Fidelity International's fixed income investment manager, warned:

U.S. Treasury yields have surged, reflecting the emergence of a "capital flight" phenomenon, indicating that investors are unwilling to continue footing the bill for U.S. deficit financing.

Hedge funds slightly triggered a market run.

Large institutions and hedge funds often use a high-leverage strategy involving the arbitrage of the price difference between government bonds and futures called "basis trade (basis trade)", which has also become one of the reasons for the sharp fluctuations in U.S. bond yields:

When the market is volatile, investors quickly close positions and repay loans, which may trigger a spiral increase in yields and even lead to market failure and exacerbate market fluctuations.

( Bond market shock, US stocks fall and then rise, basis trading crash: How did Trump use tariff chips to play this game well? )

China's Hidden Variables: Huge Debt Holdings as Potential Leverage

Although there has been no clear action, China, as one of the largest overseas holders of US debt, any news of reduction could become a significant shock to the market.

( The US-China tariff struggle, will China use 760 billion US Treasury bonds as a weapon? )

Who will replace US Treasuries? Global hedging funds are restructuring.

As the safety of US Treasury bonds is being questioned, Bloomberg has found that funds seem to be shifting towards other safe-haven assets:

German government bonds: Europe's bastion of stability

Money managers in Europe and Japan see German bunds as a reliable safe-haven because of its stable policy environment. Amid the market turmoil in April, German bunds emerged as one of the main beneficiaries.

Gold: An ancient but still shining asset

Gold prices have surged to historical highs, with central banks continuously increasing their positions. Although it cannot generate fixed income, it remains a solid wealth preservation tool amid uncertainty.

A Turning Point in the Global Financial System? Investors Face Choices in a New Era

The turbulence in the U.S. bond market reveals an important signal: "Global capital may no longer unconditionally trust the foundation of the U.S. economy and system."

In the short term, the market depth and liquidity of U.S. Treasury bonds still have an advantage, but their "risk-free" label has begun to show cracks. In the face of rapidly changing geopolitical and economic policies, investors are bound to reassess their asset allocation and brace for a more uncertain financial future.

This article discusses the global capital shift after the tariff war and the fluctuations in Trump's policies: Has the safe-haven status of U.S. Treasury bonds loosened? First appeared in Chain News ABMedia.