U.S. Treasury Bonds Face Deepening Crisis: Alarm Sounds Over Triple Threat to Stocks, Bonds, and Currency
Recently, the U.S. Treasury market has experienced continuous turbulence, with the situation growing increasingly severe, drawing high attention from global financial markets. The cooling demand for U.S. Treasuries, coupled with accelerating foreign capital outflows, has triggered a "triple threat" crisis in U.S. stocks, bonds, and currency markets, with signs of further escalation.
Intense volatility in the U.S. Treasury market has become the new norm, and the persistent sell-off by foreign investors has fueled widespread market anxiety. For a long time, U.S. Treasuries, backed by America’s strong economic power and international standing, have been regarded as a safe-haven asset by global investors. However, the simultaneous weakening of U.S. Treasuries and the U.S. dollar reflects a significant decline in global investor confidence in the U.S. fiscal outlook.
Deutsche Bank issued a warning in its latest report, pointing out that the core issue of this crisis lies in foreign investors’ unwillingness to continue "footing the bill" for America’s twin deficits—namely, the fiscal deficit and trade deficit. Historically, the U.S. has relied on foreign investors purchasing Treasuries to fill these gaps. But now, foreign investors are raising serious doubts about the sustainability of U.S. debt burdens.
Historical data shows that whenever the Treasury market faced turbulence in the past, the Federal Reserve often intervened with monetary policies such as quantitative easing, buying large quantities of bonds to stabilize the market. However, Deutsche Bank argues that this time, the Fed’s monetary policy may struggle to address the deeper problem. The current crisis is not merely a liquidity issue but a crisis of confidence in the U.S. fiscal outlook. Even if the Fed ramps up bond purchases, it may temporarily stabilize Treasury prices but cannot fundamentally alleviate foreign investors’ concerns about U.S. fiscal health.
The cooling demand for U.S. Treasuries and accelerating foreign capital withdrawals have also triggered ripple effects on U.S. stocks and currency markets. In equities, declining risk appetite has led to capital outflows from bonds without a corresponding influx into stocks, instead triggering market corrections. Many blue-chip and tech stocks have seen varying degrees of declines, while market fear gauges have risen. This is because the Treasury market is closely linked to equities—fluctuations in Treasury yields directly impact corporate financing costs and investor return expectations. As Treasuries lose appeal, investors downgrade earnings forecasts for companies, leading to stock sell-offs.
In the currency market, the U.S. dollar, as the world’s primary reserve currency, is also under pressure. The weakening demand for Treasuries has reduced foreign investors’ appetite for dollars. The dollar index has been on a downtrend recently, depreciating against major currencies like the euro and yen. This not only undermines U.S. international trade competitiveness but also fuels volatility in global forex markets.
For global financial markets, the escalating triple threat to U.S. stocks, bonds, and currency carries far-reaching implications. On one hand, turmoil in U.S. financial markets could trigger global capital repatriation, exposing emerging markets to capital flight risks and potential shocks to their stock, bond, and currency markets. On the other hand, a weaker dollar may increase volatility in dollar-denominated commodity prices, adding to global inflationary uncertainty.
To navigate this predicament, the U.S. government must take concrete and effective measures to restore market confidence. On the fiscal front, it should work to improve fiscal discipline, reduce deficits, and enhance sustainable economic growth. At the same time, it must strengthen communication with international investors to rebuild trust. Otherwise, the triple threat crisis stemming from cooling Treasury demand could worsen, posing an even greater threat to global financial stability.
