As global equity markets nosedive amid Donald Trump’s tariff wars, a surprising shift is taking place in one of the world’s most trusted safe-haven assets: US Treasuries.
Traditionally seen as a reliable refuge in times of financial turmoil, Treasuries are now exhibiting atypical behaviour. They are rising, not falling.
In periods of geopolitical and economic uncertainty, investors usually flee risky assets like stocks for the safety of bonds, driving yields lower. This time, the opposite is happening.
On Wednesday, the 10-year yield surged 10 basis points to 4.40%, contributing to a 50 basis point jump over the past three trading sessions.
Looking in price terms, the benchmark 10-year Treasury note fell by over 3% by mid-week, eyeing its worst week since last August.
This counterintuitive movement has prompted renewed doubts among investors over whether Treasuries can still be relied upon in periods of acute uncertainty.
The culprit may be rooted in what analysts call the unravelling of “US exceptionalism trade”.
US-China trade war escalates
Last week, US President Donald Trump announced sweeping tariff increases on all trading partners, with import duties on Chinese goods escalating to a staggering 104% this Wednesday.
Beijing retaliated with an 84% tariff on selected US exports, fuelling fears of a broader economic decoupling between the world’s two largest economies.
These developments are unnerving investors who, in past crises, would have turned to Treasuries en masse.
Cracks in the ‘US exceptionalism’ narrative
For over 70 years, the United States has enjoyed a unique position in global financial markets, thanks to its leadership in trade liberalisation, military power, and technological innovation.
For decades, global portfolios were heavily tilted toward Wall Street stocks and the US dollar, buoyed by confidence in the country’s technological dominance, institutional strength, and economic resilience.
This narrative is now facing a reckoning. Tariffs, protectionist policies, and diminished confidence in US institutions are reshaping perceptions of the country’s economic stability.
This shift is being felt not just in Treasuries, but across the spectrum of American financial assets. US equities, long a magnet for global capital, are facing heavy outflows.
The dollar, once a beacon of stability, has underperformed amid the upheaval.
“This is the crisis of the US exceptionalism trade,” said Michael Cahill, strategist at Goldman Sachs.
“If tariffs weigh on US firms’ profit margins and US consumers’ real incomes, they can erode that exceptionalism and, in turn, crack the central pillar of the strong dollar.”
The concerns go beyond sentiment. A key piece of the puzzle is foreign demand as appetite for Treasuries is also weakening among major international buyers.
According to Meghan Swiber, strategist at Bank of America, Japan and China—two of the largest holders of US government debt—have already started to pare back their holdings.
The prospect of a narrower US trade deficit, driven by tariffs, could further reduce the need for foreign reserves to be parked in dollar-denominated assets.
“If tariff policy does help to close the trade deficit as intended, this also reduces the need for foreign buyers to allocate towards USD assets like Treasuries,” Swiber noted.
Gold reclaims its crown
As trust in Treasuries and the US dollar weakens, investors are turning to gold as a more reliable store of value. Bullion has gained 17% since the start of the year, outperforming both the greenback and long-dated US government bonds by more than 20 percentage points.
“Markets are not taking [tariffs] well, and gold seems to be the only safe haven in all of this mayhem,” economist Ayesha Tariq said in an email.
With foreign demand for Treasuries in question and investor confidence in US leadership waning, the asset once deemed the ultimate haven is under increasing scrutiny.
The future of the US dollar-based financial order may not be at immediate risk, but the signs of a changing global investment landscape are becoming harder to ignore.
