It is not only on the stock market but also on the bond market that the policies of US President Donald Trump have weighed on prices. In the media there is talk of a flight from US Treasuries and from the dollar. Here is why investors should not let this unsettle them.
Laws often carry unwieldy names. The "Rinderkennzeichnungs- und Rindfleischetikettierungsüberwachungsaufgabenübertragungsgesetz" (Cattle Marking and Beef Labeling Supervision Duties Delegation Act) from Mecklenburg-Vorpommern was repealed some time ago, but it still illustrates this especially vividly.
"One Big Beautiful Bill": this title sounds far more appealing. Even though it gives no hint whatsoever of what it is actually about. With the "One Big Beautiful Bill Act", US President Donald Trump wants to push many of his political agenda items through Congress in one fell swoop. These include tax cuts running into several trillion US dollars. To pay for them, Trump wants to make savings on, among other things, Medicaid, the US healthcare program. On balance, however, substantially lower revenues would be set against higher spending.
Bond prices under pressure
The bond market in particular did not find this "beautiful" at all. With the unveiling of the legislative package, prices fell and yields climbed sharply. In May, an auction of 20-year Treasuries also provided material for headlines. Because demand was relatively weak, and a yield of more than five percent had to be offered to bring the planned volume to market.
As early as the beginning of April, yields on US Treasuries had risen sharply when US President Donald Trump threatened the entire world with extremely high tariffs. The fact that he largely backtracked even before they took effect was attributed above all to the reaction of the bond markets. Trump does want a weaker dollar to make US exports more attractive. But, because of the US debt burden, he wants the lowest possible interest rates and bond yields.
"It is becoming clear that the market can constrain the scope for political action," observes Philipp Dobbert, Chief Economist at quirion and Quirin Privatbank. "I think the US government is increasingly recognizing that it can become very expensive for them if they squander confidence on the bond market."
No reason for concern
For investors, however, in Dobbert's assessment, there is no reason for concern. "The scale of the price fluctuations is not particularly unusual." It is true that the US debt burden is indeed immense. In 2024 it stood at around $36 trillion. Relative to gross domestic product, that was 124 percent. "But this is not a new issue. And so far, the debt burden has never really damaged the reputation of US Treasuries as a safe haven."
The most recent downgrade of the credit rating by Moody's in May did not come as much of a surprise either. The rating agency S&P had already taken this step back in 2011. The rating agency Fitch followed suit in 2023. At all three major rating agencies, the US continues to have very good credit ratings. Despite the downgrade, Moody's also left no doubt that the US is able to service its debt. In its reasoning, Moody's pointed to the unique position of the US economy among the rated countries. And to the fact that, while the economy might suffer from new tariffs in the short term, its long-term growth should not be significantly affected by them.
The world's leading currency – by a wide margin
US Treasuries are highly significant for the global financial system. "In terms of size, the US bond market does not dominate internationally as strongly as the US stock market," Dobbert explains. "But US bonds have immense relevance, for example because many central banks hold them as a kind of interest-bearing currency reserve."
And the role of the US dollar as the world's leading currency is not in jeopardy at present either. The importance of the US currency is too great for that, as figures from the International Monetary Fund show. In 2024, the US dollar's share of total foreign exchange reserves worldwide stood at around 60 percent. In second place was the euro, with a share of 20 percent.
US bonds in quirion's global ETF portfolio
US bonds also play a role on the bond side of quirion's global ETF portfolio – albeit a subordinate one. Euro bonds dominate there by a wide margin, because currency fluctuations would distort the more conservative risk-return profile of the bonds. That is why US Treasuries are used, if at all, on a currency-hedged basis, and specifically in the stabilizing variant of the two bond building blocks of the global portfolio. Within it, they had a weighting of 8.2 percent at the end of May. "During major global crises such as the coronavirus pandemic, the prices of US Treasuries rose while stock prices fell," Dobbert notes. So they lived up to their role as a risk buffer. "At the moment, I see no signs that they will not continue to fulfill this function in the future."
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