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America's perceived safe-haven status for global investors has deteriorated over the last few weeks.
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The U.S. is experiencing a highly unusual bout of “capital flight,” where large amounts of money are being taken out of U.S. Treasuries and invested outside America instead. As a result, there’s been a jump in bond interest rates, while the value of the dollar has tanked—it's down more than 8% since the start of the year.
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America hasn't experienced capital flight in decades, and it's not a good sign. This worrisome behavior is ultimately what has caused President Donald Trump to pause most of his administration’s proposed tariffs.
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As economic journalist Noah Smith recently explained on his Substack, capital flight “usually only happens to poor countries, and it never ends well.” Billionaire financier Ken Griffin sounded a similar theme this week. “The United States is more than just a nation—it’s a brand,” Griffin said at
Semafor’s World Economy Summit, but America’s erratic tariff policy is “eroding that brand right now.” |
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So who exactly is “selling America,” and why?
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My colleague Jim Edwards reached out to a bunch of analysts this week to get their take. |
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“Initial suspicions targeted Japan and China,” Jim writes. “After all, they are both seeing their export markets hurt by Trump’s trade war, and they are the first and second-largest foreign holders of U.S. Treasuries. Perhaps those countries were trying to send a message to Trump: Remember, we can hurt you too!”
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But Jim’s sources said they saw little evidence of such activity. They also dismissed another popular theory: that hedge funds were unwinding highly leveraged bets on U.S. bonds. |
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“In fact, there is a simpler explanation,” Jim reports. “The dollar is in decline and yields on U.S. bonds are staying high because everyone—literally everyone on the planet—wants to get the hell out of Dodge City right now.
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“That includes [U.S.] stocks, bonds, and currency. With Trump changing his mind by the hour on trade policy and bullying his chief central banker on a daily basis, investors of all kinds are simply limiting their exposure to a nation they now regard as a risk asset rather than a safe haven.”
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All of this is bad news, of course, for Fortune 500 CEOs. It’s not just that their companies’ share prices are falling; higher bond yields also drive up their borrowing costs. Business leaders’ concerns may have swayed the president to ease up on his aggressive moves—but the cloud of uncertainty remains thick.
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For more on what's going on, check out Jim's story below.
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