U.S. Bond Market Shifts Under Trump’s Protectionism

By Davide Barbuscia

NEW YORK (Reuters) – U.S. bond giant PIMCO stated that protectionism in U.S. trade policy has reinforced the idea of reducing exposure to the U.S. dollar and long-dated Treasury bonds, while increasing appeal for foreign bond markets.

President Donald Trump’s tariffs have caused upheaval in financial markets, leading to a substantial selloff last week in Treasuries and the dollar. This turmoil has raised questions about the traditionally safe-haven status of U.S. assets.

“With its protectionist policy pivots, the U.S. is prompting global investors to reconsider long-held beliefs about the U.S. investment landscape,” said Marc Seidner, chief investment officer for non-traditional strategies, and Pramol Dhawan, head of emerging market portfolio management at PIMCO, in a Thursday note.

They noted that the U.S. has historically occupied a privileged position with the dollar as the global reserve currency and Treasuries as a preferred reserve asset. However, they cautioned that this status is not assured. A decline in global capital flows into U.S. assets could indicate a shift towards a multipolar world with less reliance on a single reserve currency.

PIMCO, based in California and managing approximately $2 trillion in assets, observed that last week’s selloff, which saw simultaneous drops in U.S. equities, the dollar, and Treasuries, resembled market behavior typically seen in emerging economies.

Trump’s trade policies may dampen capital inflows into the U.S., strengthening the rationale for a bearish stance on the U.S. dollar, according to Seidner and Dhawan.

Simultaneously, they expressed that long-dated foreign government bonds from Europe, the UK, Japan, or emerging markets appear to present attractive alternatives to U.S. Treasuries.

“Rapid U.S. policy changes create challenges for investors used to a financial system centered around U.S. markets and assets,” they commented.

They added, “The breakdown of long-standing global correlations could be painful for global investors, who might struggle to determine how many U.S. assets to retain.”

(This story has been refiled to clarify that the bearish stance specifically applies to long-term Treasuries in the headline and paragraph 1).