30-Year Yield Tops 5% as 'Sell America' Trade Returns

Washington's policy signals are reviving the "Sell America" trade, pushing the 30-year Treasury yield above 5 percent for the first time since 2007.

A Fed chair cutting back on policy communication, a first coordinated currency intervention in three decades and a widening fiscal deficit are shaking confidence in US assets, driving the dollar down 2 percent from June highs and the 30-year Treasury yield above 5 percent for the first time since 2007.

"Bessent and Warsh are a double whammy for global markets, and investors have to price their policy risk into the dollar and Treasury curve — that's the Trump administration premium," said Rajeev De Mello, global macro portfolio manager at Gama Asset Management, who is selling Treasuries and dollars.

The Bloomberg Dollar Spot Index has fallen about 2 percent from its June peak, weakening against every Group of Ten currency even as US interest rates stay elevated — an unusual divergence. The 30-year yield broke above 5 percent this week before easing, while the term premium — the extra return investors demand to hold long-dated debt — climbed to 1.56 percent, the highest since 2013. Treasury Secretary Scott Bessent approved the first US-Japan coordinated intervention to support the yen in nearly three decades, a move that further pressured the dollar. The Treasury also raised its third-quarter borrowing estimate to $739 billion.

The stakes are high for global markets. If foreign buyers slow their Treasury purchases relative to US borrowing needs, long-end yields face further upward pressure, complicating the Fed's inflation fight under Chair Kevin Warsh and potentially triggering broader risk-off across assets.

Fed Credibility Doubts Weigh on Long-End Yields

The market's core worry is whether the Fed can anchor inflation expectations under Warsh, who has favored reducing policy communication since taking over. Analysts say a Fed that falls behind the rate cycle would push long-end yields higher. Allianz Global Investors, which manages 598 billion euros, favors steepening trades, positioning five-to-seven-year notes against 30-year bonds. "The risk is that the Fed falls behind the curve in the rate cycle, and long-end yields become more unanchored, while the US fiscal challenge is already severe," said Ranjiv Mann, senior portfolio manager at Allianz Global Investors.

Yen Intervention Spurs Dollar Debate

Bessent defended the intervention in a CNBC interview, saying persistent yen weakness could trigger broader depreciation across Asian currencies and that Washington would support Japan "at all costs" in ways that benefit the US economy and stabilize global markets. The intervention was funded by buying euros and selling dollars to purchase yen, a structure Bessent described as a "reallocation of reserves" designed to avoid directly hitting the Treasury market. However, investors warn that if Japan — the largest foreign holder of US Treasuries with $1.14 trillion — is forced to sell some of its holdings to fund intervention, the spillover could still reach the Treasury market. Standard Chartered's global chief investment officer Steve Brice expects the dollar to fall 3 to 4 percent over the next 12 months, saying "government actions and other factors are gradually eroding the structural advantages of US markets."

'American Exceptionalism' Intact, But Risks Mount

Strategists stress that no one is predicting the end of the dollar's reserve-currency status or Treasuries' role as the global benchmark risk-free asset. PIMCO's multi-asset credit strategist Lotfi Karoui noted that US assets remain broadly attractive to foreign buyers, pointing to the absence of large-scale synchronized selling — only about 2 percent of trading days this year saw 10-year Treasuries, US investment-grade credit spreads and the dollar fall together. "If there were a genuine loss of confidence in American exceptionalism, such synchronized selling should occur more frequently," Karoui wrote. But Lazard's chief market strategist Ronald Temple warned that foreign purchases of Treasuries are no longer keeping pace with US borrowing. "The confidence backdrop around US safe-asset status is changing, and there are a lot of questions. Over the coming years, dollar depreciation will re-emerge," he said in a Bloomberg Television interview.

This article is for informational purposes only and does not constitute investment advice.