Den svaga amerikanska dollarn; How worrying is the weakening dollar?

 

On Monday, when stocks were tumbling for a third straight day, prices of long-term U.S. Treasury debt fell, too. That drove their yields, which move in an inverse relationship to prices, higher.

It was especially confounding because long-term Treasury prices in preceding days hadn’t gained as much as they normally would in the face of a steep-stock market selloff. So much for government debt being a haven at a time of upheaval.

The big question is why Treasury yields have behaved this way.

With Treasury yields well above 4%, risk-free debt could act as a brake on a potential stock-market rebound such as the one that started to unfold Tuesday. This is even more of a risk since equity analysts haven’t yet fully priced in growing recession risk.

If a prolonged downturn materializes, Treasurys would typically be big winners, especially if stocks remain highly valued.

Wall Street Journal 8 April 2025 11:26 am 

https://www.wsj.com/finance/investing/the-stock-market-is-in-chaos-why-are-treasury-yields-above-4-a34228ab

In times of trouble, the greenback normally strengthens

The Economist 4 April 2025

https://www.economist.com/finance-and-economics/2025/04/04/how-worrying-is-the-weakening-dollar

På måndagsförmiddagen började  USA-räntorna vända upp rejält och fram till nu har den amerikanska tioårsräntan stigit till 4,20 procent – en uppgång på 30 punkter på mindre än ett dygn.

Marknaden prisar för närvarande in att centralbanken Federal Reserve ska sänka styrräntan fem gånger innan året är slut.

I stället spekulerar bedömare i att ränteuppgången beror på att investerare inte längre ser amerikanska statsobligationer som en säker hamn. 

Victor Hultgren DI 8 april 2025

https://www.di.se/live/marknaden-oroas-over-plotsliga-rantevandningen/

But on Monday, Treasuries fell once again

Any further declines in safe assets are the real distress flare to look out for.

Katie Martin Financial Times 7 April 2025

https://englundmacro.blogspot.com/2025/04/rolf-lanktips-7-april-2025-c-day.html

Like the End of the Beginning

The most ominous development — a massive Treasury selloff.

A logical but alarming explanation is that someone somewhere had to make forced sales to raise cash. 

If there is one alarming scenario that recurs, it’s of a contemporary LTCM meltdown — a repetition of the extreme market pain that resulted when the Long-Term Capital Management hedge fund ran into trouble in the wake of the 1998 Russian debt default. 

That incident only ended with a rescue coordinated by the Fed and then an emergency rate cut.

There was a breather in the Lehman crisis, too, but the low was months away.

This president has made it a lifelong principle never to apologize or admit error. How, then, can the administration correct its course?

Stephen Miran, the chairman of the Council of Economic Advisors, who is seen as a principal architect of the policy, used Churchillian language 

https://www.youtube.com/watch?v=80_HXIHa724

in a speech defending the US approach:

- Americans have been paying for peace and prosperity not just for themselves, but for non-Americans too. President Trump has made it clear that he will no longer stand for other nations free-riding on our blood, sweat, and tears, whether in national security or trade.

Such words make it hard to admit defeat. 

John Authers Bloomberg 8 april 2025 at 07:05 CEST

https://www.bloomberg.com/opinion/newsletters/2025-04-08/tariff-slump-manic-monday-looks-like-the-end-of-the-beginning

The performance of Treasuries and the dollar is raising questions about whether Trump’s tariff policies will erode America’s exorbitant privilege.

It’s easy to see why markets are treating the greenback and bonds differently this time.

This all comes at a time when the national debt is already larger than America’s gross domestic product. It’s a fiscal picture that would alarm investors in almost any other country, and it’s only poised to get worse, with Republicans pushing to extend trillions in tax cuts.

 A charitable interpretation would say that the dollar was already richly valued, and didn’t appreciate because it was so strong to begin with. For the past several years, the buck had been pumped up by massive capital flows chasing relatively attractive yields and the world’s most exciting stock market. 

In their 2024 paper “Global Hegemony and Exorbitant Privilege,” 

https://www.nber.org/papers/w32775

researchers Carolin Pflueger and Pierre Yared show how exorbitant privilege and military hegemony tend to go hand in hand. 

Any chipping away at its foundations will take years, if not decades to play out. 

But before the US, the British had the world’s top currency and bond market, and the Dutch held that distinction before them.

Jonathan Levin Bloomberg 8 april 2025 

https://www.bloomberg.com/opinion/articles/2025-04-08/shaking-faith-in-dollar-treasuries-is-a-dangerous-gamble

Even ‘safe haven’ trades like Treasurys are falling on Trump’s tariffs. 

The roughly $28 trillion U.S. Treasury market was supposed to be a safe port to ride out the storm as President Donald Trump’s blanket tariffs send shockwaves through global markets.

But over a volatile few days, at least two conflicting messages have emerged in the world’s largest and most liquid debt market to challenge that notion, with potentially painful ramifications for investors.

“We are totally at the mercy of the headlines that are coming through,” said Skiba at BlueBay. “It’s a slightly more hopeful day today, but that can all change on the dime.”

Market Watch 7 april 2025 

https://www.marketwatch.com/story/even-safe-haven-trades-like-treasurys-are-falling-on-trumps-tariffs-what-does-that-tell-investors-59911b98

Tillbaka till Rolfs länktips 8 april 2025; sju börskrascher

https://englundmacro.blogspot.com/2025/04/rolfs-lanktips-8-april-2025-sju.html