Lock the White House Watch Newsletter for free
Your Guide to What Trump’s Second Season Means Washington, Business and World
Large investors say they are diversifying their bond portfolios because Donald Trump’s trade war and the country’s growing deficit undermine the appeal of the world’s largest debt market, and therefore include greater exposure to markets other than the US.
The US debt market has recently been hit by the president’s “big, beautiful” tax bill. This was passed by the House on Thursday, threatening to significantly increase the country’s public debt.
Rising concerns over government borrowing levels follow the Treasury’s wild volatility amid fallout from the fallout from Trump’s tariff blitz last month.
Vincent Mortier, chief investment officer at Amundi, Europe’s largest asset manager, said: “The country has become home to extreme financial and non-discipline.”
Investment directors emphasized that the dollar will remain the global reserve currency for the near future, and that the Treasury will remain a central component of its bond portfolio.
However, they added that the recent disruption caused by Trump’s recent trade war and his “liberation day” tariffs on April 2 highlighted the benefits of international allocation, particularly while debt markets in many regions have suddenly generated strong profits.
“We are committed to providing a range of services to our customers,” said Bob Michele, Chief Investment Officer and Global Bonds Officer at JPMorgan Asset Management.
“They are now concerned about everything in the US, the impact of tariffs, the size of the fiscal deficit and the federal deficit.
Longtime U.S. government bonds sold sharply before Trump’s tax bill passed, extending the decline in days after weak Treasury auctions highlighted intense fears about America’s financial trajectory. Yen yields rose above 5.1% on Thursday, reflecting a sharp drop in prices, at its highest level since late 2023.
Meanwhile, the dollar fell 8% this year against its six major associates.
“The dollar is a story,” said Lindsay Rosner, head of multisector investment at Goldman Sachs Asset Management. “It’s difficult to find a deep, unequal market for liquids, but “the impact on the dollar was meaningful. There is a weakness in dollars with some permanence. Diversification outside the US has its strength.”
The management team at Bond fund giant Pimco told the Financial Times in early May that it would be “smart” to “find other high-quality markets” amid increasing risk of a recession caused by Trump’s tariffs.
Investors have particularly highlighted the appeal of the European bond market along with Japan and Australia’s debt. All of these provided strong yields along with increasingly bright economic narratives.
“I think you’re interested in looking out of the US market with non-dollar assets, especially when you get a substantial amount of yields in Europe,” Michele said.
“Historically, everyone has seen Germany and France.” However, “we see what was considered to be the surrounding borrowers, Italy and Spain, 15 years ago, due to concerns about the expansion of the finances.”
Concerns about the US fiscal year dominate recent market conversations as Congress advances a bill extending the 2017 tax cut. Independent analysts say the law will significantly increase the annual deficit and the country’s debt burden.
“The US will likely maintain a budget deficit of 6-7% of GDP,” the Amundi mortar said. “It’s a lot of things, and it will bring about more refinance needs.
“Can demand continue? Yes. But many buyers demand higher yields.”
Recommended
Henry McVay, head of global macros and asset allocation for private capital firm KKR, said in a report this week that when Trump launched his global trade war, it “catalyzed a serious conversation between global investors and their board of directors about diversifying beyond the US capital markets.”
“When the US (early this year) experienced a weaker dollar triple ect, and experienced a stock decline and a rise rate, it sparked a risk alarm bell, not only to reel everyone from sovereign wealth funds to family offices, but also to find ways to reduce overweight into US assets.”
McVay suggested that “the traditional role of US government bonds could be reduced due to the country’s fiscal deficit and high leverage.”
