By Amanda Cooper and Yoruk Bahceli
LONDON (Reuters) – Investors are dumping U.S. assets they usually favour in times of turmoil as fear over the economic impact of U.S. President Donald Trump’s reciprocal tariffs shakes confidence in traditional safe-havens.
The dollar and U.S. Treasuries have taken a beating as Trump’s tariffs, plus a 104% duty on China, took effect, while China swiftly retaliated. In contrast, safe-haven favourites such as gold and the Swiss franc continue to pull in cash.
The rapid rise in U.S. Treasury yields has worried investors, who fear this could be forced selling to cover portfolio losses and a dash for cash, rekindling memories of the COVID-19 market turmoil.
Here is a glance at how traditional safe havens have fared so far during the tariff turbulence:
The dollar was the first to lose its shine after Trump announced tariffs, when it dropped along with stock markets. This was an unusual move raising questions about the global standing of the U.S. currency, often dubbed “King Dollar” for its strength and dominance in global currency markets.
The dollar has shed more than 5% this year against a basket of other currencies after posting its weakest start to a year since 2016, LSEG data shows.
The dollar’s failure to benefit from rising U.S. Treasury yields has added to investors’ worries because, until now, higher returns on Treasuries relative to other bond markets had boosted the dollar’s appeal.
“The dollar not getting support from (higher) yields suggests the dollar is not a currency safe-haven,” State Street Global Markets’ head of macro strategy Michael Metcalfe said.
Investors initially rushed into government bonds on heightened recession risks, but that has quickly changed.
After plunging 26 basis points last week, U.S. 10-year Treasury yields have surged more than 40 basis points so far this week. Longer-dated bonds are the worst hit, with 30-year yields up nearly 50 bps, set for their biggest weekly jump since the early 1980s. Bond yields rise when prices fall.
An index of Treasury volatility has risen to its highest since late 2023.
Yields have surged even as traders price in faster U.S. Federal Reserve rate cuts, suggesting deliberate dumping of Treasuries rather than selling driven by changes in economic expectations. This is reflected in a widening gap between Treasury yields and interest rate swaps, derivatives used for hedging.
Pepperstone senior strategist Michael Brown said that pointed to a real lack of desire to hold Treasuries.
