Markets stabilized after yesterday’s shock. Japanese government bonds rebounded, sending other sovereign bonds higher, while declines in stocks and the dollar paused. One anomaly is gold, which continues to hit new highs supported largely by persistent geopolitical uncertainty, BBH FX analysts said.
Headlines of the Treasury bond sell-off are resounding, and their impact is limited
“The world is shifting from a unipolar world to a multipolar world making global politics more contentious and crisis-prone. Interestingly, Canadian Prime Minister Mark Carney yesterday highlighted that the rules-based international order is undergoing a “rupture, not a transition” as “the great powers have begun to use economic integration as weapons.” Tariffs as leverage, and financial infrastructure as coercion. “And supply chains are weak points that must be exploited.” Gold benefits in this new world order because it is free of direct links to any country’s economic policy, resistant to crises, and retains its real value in the long term.
“Yesterday, Danish pension fund AkademikerPension said it would sell its holding of US Treasuries, worth around $100 million, by the end of the month due to ‘weak US government finances’. The signaling effect from that news overshadows the underlying benign economic impact. Overall, Denmark’s holding of long-term US Treasuries represents 0.10% of total foreign holdings and 0.03% of total Treasuries outstanding.”
“As we argued in our daily strategy note yesterday, the idea that the euro area could weaponize its holdings of Treasuries if trade tensions with the US escalate is completely exaggerated and not credible. However, in the longer term, the loss of confidence in US trade and security policies, coupled with political interference in the Fed’s independence threatens to accelerate the decline in the dollar’s role as the primary reserve currency. This represents a structural drag for the US dollar.”
