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Large investors say that they diversify their bond portfolios in order to undermine more markets outside the United States as Donald Trump’s trade war and the growing deficit of the country the attraction of the world’s largest debt market.
US debt markets have been hit in the last few days by the “large, beautiful” tax law of the President, which was passed by the House of Representatives on Thursday and threatens Increase the country’s public debts strongly.
The increasing concerns regarding the extent of state loans follow wild swings for Government bonds During the effects of Trump’s Tariff Blitz in the last month, when US debt did not play his traditional role as a refuge from market stress.
“The United States is no longer the ultimate and only perceived safe haven,” said Vincent Mortier, Chief Investment Officer at Amundi, Europe’s largest asset manager. “The country is the home of the extreme fiscal undiscipline.”
Investment chiefs emphasized that the dollar would remain the global reserve currency for the foreseeable future, and government bonds would maintain their role as a central component of bond portfolios.
However, they added that the recent turbulence, triggered by Trump’s trade war and his “liberation day”, were triggered. Tariff On April 2, the advantages of the international allocation had underlined, especially, while many regions suddenly achieved debt markets.
“Our customer base checks your allocations and in comparison, where they were historical, they feel very overweight dollar assets,” said Bob Michele, Chief Investment Officer and head of global fixed income at JPMorgan Asset Management.
“You are now concerned about all things in the United States, the effects of tariffs, the size of the budget deficit and the federal deficit as well as further and further. Why not take this opportunity to diversify in other markets?”
Long-term bonds of the US government sharply sold In the run -up to the adoption of Trump’s tax bill, which expanded a decline in several days after a weak auction of the Ministry of Finance, emphasized the increased fears of the financial trajectory. The 30-year-old return rose over 5.1 percent on Thursday, its highest level since the end of 2023, which reflected a strong drop in price.
The dollar has dropped by 8 percent against six big colleagues this year.
“The dollar is the story,” said Lindsay Rosner, head of MultiSiector Investing at Goldman Sachs Asset Management. “It is difficult to find a correspondingly liquid, deep in-law market”, but “the effects on the dollar were meaningful. There is weakness in the dollar that has a certain resistance. Makes diversification outside the USA.”
The Bond Fund Giant Pimco management team announced the Financial Times in early May that it was “prudent”.Search for other high -quality markets In the middle of increased recession risks through Trump’s tariffs.
Investors in particular emphasized the attraction of the European bond markets together with Japanese and Australian debts, which provided all strong returns with increasingly optimistic economic stories.
“I would say that there is an acceleration of the interest to look outside the US markets for non-dollar assets, especially now that they receive a considerable amount of yield in Europe,” said Michele, who found that a “new core is developing” in the region.
“Historically, all Germany and France had looked at themselves.” But “because there are concerns about tax expansion, we are now looking at what was considered Italy and Spain 15 years ago as a peripheral borrower.
The concerns about public finances in the USA have dominated the conversation on the market in the past few days when the congress progresses a legislative template that would extend Trump’s tax cuts in 2017. Independent analysts say that legislation would significantly increase the annual deficits and debt burden on the country.
“The United States will most likely maintain a budget deficit of 6 and 7 percent of GDP,” said Amundis Mortier. “This is a lot in every standard and will lead to more refinancing requirements. Therefore more nationals on the market.
“Can the demand follow? Yes, but many buyers will request higher income.”
Henry Mcvey, head of the global allocation of macro and asset allocation in private capital companies KKR, said in a report this week that the “liberation day”, when Trump initiated its global trade war, was “a catalyst for serious discussions with global investors and their boards about the diversification about the US capital markets.
“When the United States (early this year) experienced the trifecta of a weaker dollar, falling stocks and rising rates, they triggered risk alarm bells, which forced all of sovereign wealth funds to family offices, but also to search for ways to reduce their overweights to US assets.”
Mcvey suggested that “the traditional role of the US state bonds could decrease due to the fiscal deficit and the high lever of the country”.
