Large U.S. Treasury holders in Asia saying "no" to "sell America" trade

Despite Moody's recent downgrade of U.S. credit and rising 30-year Treasury yields, Yardeni Research indicates that major Asian holders of U.S. Treasuries are not engaging in a "sell America" trade. According to Yardeni, the Moody's downgrade was not unexpected in Asia, and positive sentiment surrounding potentially less aggressive tariffs from President Trump, coupled with a resilient U.S. labor market and limited alternatives to the U.S. dollar, are supporting demand for U.S. assets.

Analysis

Despite recent concerns surrounding a potential "sell America" trade, amplified by Moody's downgrade of U.S. credit and a notable increase in 30-year Treasury yields to levels seen post-Trump's initial tariff announcements, Yardeni Research indicates that major Asian holders of U.S. Treasuries are largely maintaining their positions. According to Yardeni, the downgrade, which highlighted the $36.2 trillion U.S. debt and elevated interest payment ratios, was not unexpected by Asian investors and policymakers, who reportedly view it as "backwards-looking." Current sentiment among these key investors is supported by several factors: a perceived softening in an anticipated aggressive U.S. tariff push, continued resilience in the U.S. labor market, and a significant "short supply" of viable global currency alternatives to the U.S. dollar, which underpins demand for U.S. assets. However, significant fiscal headwinds remain, with President Trump's proposed budget bill potentially adding $3 trillion to $5 trillion to the existing debt load, and substantial tax cuts possibly increasing the supply of U.S. Treasury debt, thereby exerting pressure on the bond market. The provided general sentiment signal is "Neutral" (score 0.1) with a low market impact score (0.3), suggesting the market is currently absorbing these conflicting factors without extreme movements, consistent with Yardeni's assessment of Asian investor stability.

Key Decisions for Investors

• Investors should closely monitor upcoming U.S. fiscal policy developments, specifically the proposed budget bill and tax cuts, for their potential impact on Treasury supply and yields.
• Consider the persistent strength of the U.S. labor market and the relative scarcity of alternative reserve currencies as ongoing supports for U.S. dollar and Treasury demand, despite sovereign credit concerns.
• Re-evaluate exposure to U.S. Treasuries, factoring in both the current stability indicated by Asian investor behavior and the medium-term risks associated with increasing U.S. government debt.