Foreign investors took a smaller slice of a recent Treasury auction as tariff tumult reached a fevered pitch. Now, a debt-ceiling fight looms. – Michael M. Santiago/Getty Images
Anxiety around a “Sell America” trade, in which foreigners dump the dollar and U.S. government bonds, has been gripping investors ever since President Donald Trump’s tariff event in the Rose Garden on April 2 shocked global markets.
Yet a look at early data suggests that instead of a sudden boycott of Treasury auctions, foreigners so far have been simply buying less new U.S. debt than in the past.
Fresh details of a 3-year note Treasury auction during recent turmoil shows foreigners took only about 7% of the offering, which compares with a long-term average of about 12.4%, according to Guy LeBas, chief fixed income strategist at Janney Capital Management.
While relatively smooth 10-year BX:TMUBMUSD10Y and 30-year Treasury auctions from that same tumultuous patch help calm investors, LeBas said the 3-year results were a better gauge of demand for shorter-term paper typically favored by foreign central banks.
More tepid demand from foreigners could keep upward pressure on Treasury yields, which can translate to higher borrowing costs for the U.S., businesses and households. Still, LeBas thinks any pockets of weaker foreign demand will be outweighed by other factors, including a lack of alternatives to Treasurys in global investment portfolios, as well as signs of a weakening U.S. economy and inflation concerns.
“Unlike the supply shocks of the late ’70s and early ’80s, higher prices in 2025 will probably destroy demand,” LeBas told MarketWatch after a quarterly report on Wednesday showed the U.S. economy shrank for the first time in three years.
A recession isn’t written in stone, LeBas said, but he thinks tariff-related price increases will weigh on the economy and consumers, proving unsustainable fairly quickly.
Markets have found a calmer footing since Trump pivoted to a 90-day pause in early April, giving more time for most countries to engage the U.S. in negotiations before new tariffs take hold.
Looking at how the chaotic month played out, the ICE U.S. dollar index DXY finished April 4.4% lower when weighed against a basket of rival currencies, according to FactSet. The 30-year Treasury yield BX:TMUBMUSD30Y ended at 4.68%, about 29 basis points above its low for the month, while the S&P 500 index SPX logged a 0.8% decline, after staging a sustained rally as the month drew to a close.
“At the end of the day, volatility will give you opportunities,” said John Madziyire, head of U.S. Treasurys and TIPS at Vanguard. But recent violent moves in bond yields also were a driver of the Trump administration’s decision to pause and rethink tariffs, he said.
Ongoing policy uncertainty likely means more tumult, Madziyire said.
Felipe Villarroel, a portfolio manager at TwentyFour, said the safe-haven status of the dollar and Treasurys was not yet in danger. But shifts in asset allocation certainly look possible, especially as Europe focuses on beefing up defense spending, after a “decade of everybody buying everything dollar-related,” he said.
Treasury auctions matter at home and abroad, even more so in recent years when the U.S. has been amassing a large budget deficit that relies on new debt issuance to help fill the void.
Foreign demand for Treasurys has been drooping for years, with the overseas share of the $28 trillion market near 30% at the end of 2024 versus above 50% in the late 2000s, according to Federal Reserve data.
Japan was pegged as the largest holder of the group at 4%. China’s mainland holdings were 3%, with other holdings in Hong Kong, Luxembourg and Belgium. – Federal Reserve
Trump wants tariffs to help bring manufacturing back to the U.S., which could reduce the trade deficit and result in less foreign demand for Treasurys.
The Treasury Department on Wednesday said it would auction $125 billion via 3-year, 10-year and 30-year Treasurys next week. It also expects to keep a focus on shorter-term issuance in the coming quarters.
The U.S. hit its $36.1 trillion borrowing limit in January, which means it has a little bit of wiggle room under “extraordinary measures” to operate while Congress addresses the latest debt-ceiling episode. Estimates put the issue coming to a head between August and November.
In the past, lawmakers have raised or suspended the limit, but several new proposals could terminate it entirely, potentially removing political brinksmanship and also opening the door for the White House to gain more power to borrow.
While still at the proposal stage, the Treasury Borrowing Advisory Committee on Wednesday highlighted several negative aspects of repeated U.S. debt-ceiling showdowns in Congress, while laying out three alternatives, two of which would give the incumbent administration more authority to take action.
Mark Malek, chief investment officer at Siebert, said that while the debt-ceiling limit has become a “political football,” any moves to take power away from Congress and put it in the hands of the president could lead to a situation where the “fox ends up guarding the henhouse.”
As it stands, spending to cover interest payments on U.S. debt already was pegged at $952 billion for fiscal year 2025, by the Congressional Budget Office, which projects it to hit $1.78 trillion in 2035.
Beyond April’s turbulence, Eric Stratmoen, a U.S. rates strategist at Payden & Rygel, said investors were trying to gauge what recent changes will mean to the standing of the U.S. globally over the next 10 to 20 years and for the Treasury market. “The answer,” he said, “is investors are going to want more compensation.”
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