Shaking Faith in US Safe Havens Is a Dangerous Gamble
The performance of Treasuries and the dollar is raising questions about whether Trump’s tariff policies will erode America’s exorbitant privilege.
Keep the faith.
Photographer: Kirill Kudryavtsev/AFP
It is a strange time for America’s “exorbitant privilege,” the idea that the dollar and Treasury securities occupy a unique position of trust among investors. With the world’s deepest and most liquid financial markets, the US has long been a haven in times of uncertainty. Our currency and bonds are almost always quick to appreciate when wars break out; financial crises hit; and, in 2020, when the Covid-19 pandemic spread across the globe.
Yet the latest episode of market volatility has been somewhat different. Since Trump unveiled his 19th-century-style import duties on Wednesday, the US Dollar Index is down by about 0.4%. On the first market day after the news, the index weakened by the most since 2022, and it hasn’t yet fully recovered. Yields on 10-year Treasury notes initially fell, though not as much as you might think, and then sharply reversed course on Monday, leaving them up 5 basis point since the original tariff announcement. Overall, it’s the opposite of what you’d expect in the context of a stock selloff that’s brought the S&P 500 Index to the doorstep of a bear market.