The US dollar and US Treasuries have seen a significant drop again, which is the market's most serious warning to Trump

After Trump suspended some tariffs, the U.S. market only held firm for one day. Overnight, U.S. stocks fell, while U.S. Treasury bonds and the dollar returned to a downward spiral, reflecting a fundamental distrust in the U.S. economy and financial system.

On Thursday, U.S. stocks, Treasury bonds, and the dollar faced another round of frantic selling. The S&P 500 index closed down 3.5%, as investors seized the opportunity from the previous day's historic rebound to sell off their holdings; long-term U.S. Treasury bonds continued to decline, with yields soaring again after a brief respite; the dollar fell for the third consecutive day, as investors sold U.S. assets and turned to safe-haven currencies like the Swiss franc, which recorded its largest increase in a decade.

What is unusual about this market decline is that, despite widespread panic among investors, the dollar and U.S. Treasury bonds, typically seen as safe assets, did not attract safe-haven funds. Since the S&P 500 index peaked on February 19, the dollar index has fallen by 4.5%, while U.S. Treasury yields have risen by about a quarter of a percentage point since Trump announced "reciprocal tariffs" on nearly all countries on April 2.

Veteran investor Peter Schiff stated that he has never seen such a large-scale sell-off of U.S. assets, with the dollar, U.S. Treasury bonds, and U.S. stocks all suffering heavy losses. "I don't remember the dollar falling 3.5% against the Swiss franc in a single day. The journey of the U.S. riding the global tailwind is about to come to a sudden stop. Buckle up!"

This abnormal phenomenon indicates a collapse of global investors' trust in U.S. assets and serves as the most serious warning to Trump.

When the U.S. Becomes Unpredictable

The chaotic implementation of Trump's tariff policy, regardless of the final outcome, has rapidly weakened market confidence in the U.S. economy and may continue to disrupt the market for the next three months.

The Wall Street Journal analysis pointed out that in recent years, the faster growth rate of the U.S. compared to other major economies, advancements in the technology sector, and a richer supply of cheap energy have led global investors to chase the "American exceptionalism" by purchasing U.S. assets.

But now, the U.S. has become less predictable, more confrontational, and more isolated. For foreign investors, this makes the U.S. seem less safe. This shift is changing the way global investors view the U.S.

Kim Forrest, Chief Investment Officer and Founder of Bokeh Capital Partners, stated: "Even in emerging markets, we know what the policies are. But in the U.S., we can no longer conduct fundamental analysis on some of the best companies."

On Thursday, billionaire and Bridgewater founder Ray Dalio stated that after this week's severe turmoil in global markets, investors remain in "some degree of trauma, shock, or fear." "This has a significant impact on people's psychology and their attitude towards the reliability of the U.S. Things could have been handled better."

Demand for U.S. Treasuries May Decrease

According to Dalio, what is worth noting is the weakening of the dollar and the change in the yield spread between 30-year and 10-year U.S. Treasuries, which may reflect whether investors are starting to move away from what has long been considered the safest assets. "What I am most worried about is actually the fundamental supply and demand issue of debt."

Investors are concerned about the Trump administration, as it has imposed high tariffs on multiple countries regardless of existing trade rules, and may take more extreme economic measures in the future, increasing the risks of holding dollar-denominated assets.

After the Russia-Ukraine conflict, the U.S. froze the foreign exchange reserves of the Russian central bank, which has led many countries to worry about the safety of their dollar assets. Coupled with Trump's recent trade policies indicating that the U.S. will reduce its central role in global trade, this could weaken the dollar's importance as an international settlement currency, and lead global investors and central banks to be less willing to increase their holdings of U.S. Treasuries.

For Trump, the weakening dollar has one advantage: it can prevent a strong dollar from offsetting the impact of tariff policies on trade.

But this also comes at a cost: the reduced demand for dollar assets makes it difficult for the U.S. to finance its massive borrowing. The U.S. still needs foreign investors to continue rolling over their held bonds and purchasing new bonds. Even a slight withdrawal of funds could lead to a spike in yields.

JP Morgan's global interest rate strategy head Jay Barry estimates that for every $300 billion decrease in U.S. Treasuries held by foreign official entities, yields will rise by one-third of a percentage point.