Last week, markets changed their sentiment against the U.S. dollar and treasury bonds to the downside. The U.S. dollar (UUP, DXY) fell sharply, while the 10-year treasury yield closed at 4.497%.
The weak currency suggests that trading partners view the U.S. as less reliable than it once was. They will look for alternatives to the dollar as a reserve currency. Investors dumped the currency, opting instead to buy gold (GLD) and silver (SLV). Cryptocurrencies are volatile as ever, but Bitcoin (BTC-USD) is attracting buyers. BTC-USD traded as low as around $76,000 before rebounding back to $85,089 over the weekend.
Investors Dump Treasury Bonds
The U.S. will have trouble attracting buyers for its treasury bonds at auction. Although the Federal Reserve has a substantial holding, the U.S. cannot rely on the central bank as the biggest buyer. China will likely continue to aggressively sell its U.S. debt. The country will let its yuan slip below 7.4 to one USD. A weaker yuan would offset the impact of U.S. tariffs.
Investors should exercise caution when buying treasury bonds maturing longer than 12 months. Debt volatility will increase so long as the White House threatens high tariff rates against its over 50 trading partners.
