Wall Street is having another volatile week, as the looming national deficit worsens investors' outlook about the United States and its standing in the world.
Investors are selling off bonds from the U.S. government, as part of a trade known as "Sell America."
The United States government has had to pay more to borrow in the global debt markets. On Wednesday, the Treasury department found that there was tepid demand for an auction for $20 billion worth of bonds, and ended up paying a slightly higher interest rate (or yield) than expected.
This has spooked markets. Yields on 30-year U.S. Treasuries have spiked above 5% this week — an unusual, and unsettling, surge in the price that the U.S. government pays on its long-term debt. An increase in bond yields is particularly damaging to the economy because it jacks up the interest rates on many things that consumers pay, such as on mortgages and other loans.
Those bonds are also the undergirding of the global financial system, and are usually considered to be safe and stable investments. But now investors are questioning the country's economic supremacy — and its creditworthiness.
This week, the European Central Bank warned that President Trump's sweeping tariffs are putting the global financial system at risk. "Frequent shifts and reversals in tariff policy, alongside significant changes in the geopolitical environment, could have major economic and financial impacts," the central bank said on Wednesday.
That warning came just days after Moody's downgraded the creditworthiness of the United States, citing the mounting U.S. national deficit – which is approaching $2 trillion.
Moody's warning also implicitly criticized President Trump's budget bill, and its tax cuts. Extending these cuts will reduce the U.S. government's ability to bring in more revenue, and thus will worsen the current deficit.
"We do not believe that material multi-year reductions in mandatory spending and deficits will result from current fiscal proposals under consideration," the ratings agency said.
The downgrade, the budget bill, and the ongoing economic uncertainty created by President Trump's tariffs are all worsening how investors — as well as businesses and consumers — feel about the United States, and its role in the global economy.
The "sell America" trade represents a "whole change in narrative around U.S. economic exceptionalism," says Winnie Cisar, the global head of strategy at CreditSights.
She adds that investors now share "a general perception that the U.S. is perhaps a riskier place to park your cash than it was six months ago."
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