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US Bonds Are Imploding
things are going from bad to worse.
When Trump launched his trade war, it was built on a few core promises—chief among them, that the world would capitulate. But now, major economies are pushing back. He expected bond yields to drop, yet they’re surging. In just seven days, we've jumped from under 4% to over 4.4%—an incredible rise that signals a dramatic collapse in demand for U.S. Treasuries. Yields have even breached 4.5% in the last 24 hours and could climb higher.
This wasn’t part of the plan.
In times of crisis, the world usually rushes into U.S. assets—Treasuries, in particular. But this time, global markets are dumping everything. It gets worse when you realize the strategy was to engineer a recession to push yields down. The U.S. has mountains of debt coming up for refinancing, and now the interest burden is becoming unsustainable.
And don’t forget: in 2025, Besson will have to refinance over $9 trillion in U.S. debt. But with the 10-year yield spiking, can he even afford to issue long-term Treasuries? If he tries, there's a real risk the market walks away entirely. That could send borrowing costs—mortgages, car loans, everything—through the roof.
Flooding the short end with T-bills won’t help either. It’ll counteract Fed rate cuts and further erode trust in the system.
And by imposing a sweeping global tariff, Trump isn’t just punishing foreign exports—he’s also choking the flow and demand for dollars. If global trade with the U.S. drops 10%, dollar demand could fall by even more.
Things are so bad that even Janet Yellen is publicly slamming Scott Besson for wrecking the economy:
“How the Trump administration has handled the economy thus far—I’m afraid I couldn’t give it a passing grade. This is the worst self-inflicted wound I’ve ever seen an administration impose on a functioning economy. It’s going to be devastating for American households and workers.”
You know it’s serious when even Yellen—who helped inflate the last bubble—starts looking like a voice of reason. Yes, she oversaw massive deficit spending during the Biden era, but the time bomb is exploding now, under Besson and Trump.
And the bigger issue? Trump is trying to reshore U.S. industry while simultaneously cutting China out of the equation. Meanwhile, the world is boycotting American goods. The last thing he needs right now is a collapsing dollar—but that’s exactly what we’re starting to see.
The Dollar Is Plunging — And It’s a Big Problem
Today, the U.S. Dollar Index has crashed below the critical 100 mark. This is a major psychological level, and breaking it will only fuel more bearish sentiment and short-selling.
Here’s why this matters: around 15% of total U.S. consumption is import-driven. And with no strong industrial base to fall back on, a weakening dollar isn’t a benefit—it’s a cost. Americans will be forced to pay more and get less. That’s not inflation protection; that’s inflation pain. Prices across the country could rise by at least 10%, sparking real pressure on everyday consumers.
This puts Trump in a political and economic bind—especially after announcing a 90-day pause. If he ends that pause and ramps tariffs back up, it could trigger a full-blown consumer collapse that sends shockwaves through the economy.
A new Yale study found that the 90-day pause barely moves the needle. The damage is already done. We’re still sitting in the economic "danger zone."
If investors believe the U.S. is heading toward a recession—and the signals are pointing that way—it crushes investment demand. U.S. markets are heavily propped up by foreign capital, and that money is fleeing. Not because of some conspiracy—because investors go where conditions are favorable.
According to the Yale research, the effective U.S. tariff rate has surged from under 3% to around 18%—and that’s only if consumers can substitute with cheaper alternatives. If they can’t, the real cost is closer to 25%. For the average household, that just looks and feels like brutal inflation.
Think about it: if prices suddenly spike 25%, most people will immediately start cutting back. Skip the steak, buy chicken. Ditch the restaurants, eat at home. That’s the real-world impact. And it's already happening.
It’s no wonder so many companies are refusing to give forward guidance—they simply don’t know how deep the damage will run. The Yale study projects U.S. real GDP will shrink over 1% this year alone—and that’s considered a conservative estimate. Unemployment is expected to rise by 0.6%, and payrolls could be down by 740,000 jobs.
Worse yet, the economic scars won’t fade quickly. The damage will linger until at least 2035, with GDP projected to remain 0.6% smaller over the long term.
This is the root of why capital is fleeing the U.S. Nobody knows how far Trump is willing to go to prove his point—and that uncertainty is toxic to investment. The last seven days have completely shaken market confidence.
U.S. Economic Growth Crisis: The Trade War Is Tearing It Apart
Now let’s talk about the main event: the U.S.-China trade war—and the chaos it’s unleashing on the global economy.
Trump has refused to back down, escalating tariffs to over 140%. In response, China is digging in, vowing to fight to the very end. They’ve openly mocked the U.S. tariffs, calling them a joke—and frankly, they’re not taking Washington seriously anymore. Love or hate China, their message is crystal clear: U.S.-China trade, as we know it, is over.
At current tariff levels, U.S. exports to China are already commercially unviable. Any further U.S. tariff hikes on Chinese goods will likely be met with indifference. Beijing just raised tariffs on U.S. imports from 84% to 125%—a level that effectively prices out most American goods. At this point, they don’t need to respond further; the damage is already done.
This is what investors are staring at right now.
Trade flows shape the long-term viability of investing in U.S. markets. Capital doesn’t care about patriotism—it chases returns. And for decades, U.S. markets have commanded a premium based on stability and exceptionalism. But if that narrative breaks, so does the premium—and bigger downside risks appear.
No, the 90-day tariff pause won’t change that.
Here’s the bottom line: when the U.S. raised tariffs to 145%, it meant higher prices for American consumers. Nearly half of Walmart’s shelves are stocked with Chinese goods. Replacing them will either raise prices or reduce availability. Consumers either buy the pricier alternatives—or stop spending altogether. That shrinks household budgets and slams corporate earnings.
Meanwhile, when China raised its tariffs to 125%, it effectively shut the door on U.S. exports—$150 billion in annual revenue gone. That’s a massive hit to American companies. And rerouting those exports? Not easy. Countries like Canada are already slapping 25% tariffs on U.S. goods. So alternative markets aren’t exactly welcoming either.
U.S. firms face a tough choice: absorb the costs or see revenues plunge.
The bigger issue? Neither side is willing—or politically able—to back down. If Trump caves, his base will erupt. And Beijing? They’ve made it clear: they’re in this for the long haul. They believe they can outlast the U.S. entirely.
Their messaging is bold and unambiguous:
“The world is big enough without the U.S. If America wants to shut itself out of China, be our guest. Losing the U.S. market, which makes up 15% of our trade? We don’t care. We’ve been here for 5,000 years. We’ve survived without the U.S., and we’ll continue for another 5,000.”
Whether that’s posturing or not, markets are listening—and reacting.
Investors Are De-Dollarizing — And Fast
As a neutral observer, the message couldn’t be clearer: China isn’t backing down, and neither is Trump. Not now, and maybe not for years. That means the U.S. economy is facing persistent, structural headwinds—and investors are reacting.
The dollar selloff tells the whole story. More people are dumping the dollar than buying it—and that’s not a good signal for U.S. assets. Confidence is breaking down fast.
Here’s why this matters: foreign investors are a backbone of U.S. financial markets. They currently hold around $7 trillion in U.S. government bonds, $19 trillion in U.S. stocks, and $5 trillion in corporate debt. That’s nearly 30% of the entire U.S. investable market—and right now, they’re heading for the exits.
In just the past few weeks:
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Stocks have dropped over 10%
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The Dollar Index is down more than 5%
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Treasury bonds have fallen by 8%
And if the tariff war escalates further, these losses could deepen. And remember—this is just foreign capital. We haven’t even factored in U.S. domestic investor sentiment yet.
At the end of the day, investors want stability. Uncertainty crushes trust—and capital always flees instability. The biggest weak spot right now? The U.S. Treasury market, the so-called "gold standard" of safe assets.
Here’s the problem:
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Currency risk: If the dollar keeps falling, foreign investors lose money on currency conversion—even if bond prices stay stable.
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Bond volatility: Treasury yields—especially the 10-year and 30-year—are swinging wildly. We’re seeing daily moves of up to 8%. That’s unheard of in what’s supposed to be the safest part of the market.
This kind of instability scares off institutional money. Many investors will simply sit on the sidelines. Others may be forced to sell—whether due to margin calls or risk limits, the result is the same: more selling, higher yields.
According to JPMorgan, a $300 billion reduction in foreign bond holdings would raise the 5-year Treasury yield by 33 basis points. That’s not theory—that’s real-world impact. There’s speculation that China is already selling. Maybe they are, maybe they aren’t—but we won’t know until official holdings are updated in the next month or two.
But here’s what we do know: China isn’t the only player in this game.
Zoom out and look at the G7. These are some of America’s closest allies—and their holdings of U.S. debt are massive:
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Japan holds over $1 trillion in Treasuries, while facing 24% tariffs
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The UK owns $740 billion, facing 10% tariffs
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Canada and France both hold more than $300 billion, facing tariffs of 20% or more
See the pattern?
If trade slows between the U.S. and its allies, their incentive to keep buying U.S. debt drops. Why would you hold Treasuries if you’re being penalized by steep trade barriers?
Now multiply that dynamic across the globe—including China—and you start to see just how systemic this risk really is.
Hopefully, Trump’s team understands this. You can’t just reverse decades of overspending and offshore manufacturing in a matter of months—or even within a single presidential term. This is a long-term game, and trying to "speedrun" it could cause far more harm than good.
So here's the question: Will the dollar fall even further? Will the U.S. be forced to backtrack on its tariff regime? Let me know what you think in the comments below.
Disclaimer: I want to make it clear that I am not a financial advisor, and nothing I say is intended to be a recommendation to buy or sell any financial instrument. Additionally, it's important to remember that there are no guarantees or certainties in trading or investing, and you should never invest money that you can't afford to lose.
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