The dollar and US state bonds are actually considered crisis -proof – now investors turn away. The reason is the unpredictable policy of the US president. Played in Trump America’s role as a safe harbor?
Even for stock market professionals, the current situation is more than confusing. “It happens an incredible amount, always new news and tweets every day. Then the role backwards again: it wasn’t meant so. Everything is only temporary, first you have to negotiate.” For example, Foreign Analyst Volkmar Baur from Commerzbank describes the contradictory signals from the White House.
These are difficult to classify for investors worldwide. What you think of the new policy style of the US government under Trump can not only be read on the US share prices that have fallen for some time. The courses of the ten-year US state bonds also slide, and at the same time the US dollar loses value.
This time no escape into the dollar
Everything together is very unusual, says Christian Kopf, head of the pension portfolio management at the Union Investment. “It is usually the case that the US economy and the US financial market are considered a safe port. Whenever something bad happens in the world, the US dollar enhances and the US returns go back.”
Precisely because investors flee into the government bonds that are considered safe and the American state has to pay less return if investors want to borrow their money. So it was so far. Even with the 2008 financial crisis, which was largely based on the United States.
Bond markets as the “night watchman” of the state finances
This time it is different: Investors flee from US state bonds, which recently killed their return. A warning signal, pension expert head opposite the ARD finance editor. “One speaks in this context in America of the so-called Bond Market Vigilantes. Vigilante, that is the night watchman, and when the night watchman becomes restless and thieves see at work, then there is a reaction.”
The bond markets then have the role of monitoring state policy and also monitoring the sustainability of the public debt, according to bond expert Kopf. And if – as recently in response to Trump’s customs policy – the yields of the US bonds rise because investors flee from the papers, then it becomes more expensive for America to go into fault.
Dollar loses value compared to other currencies
At the same time – and that is rather unusual – the US dollar has been losing significantly in value compared to other currencies such as the euro for a few weeks. Usually a currency would have to become stronger if a country introduces tariffs, says Commerzbank-Reservisenanalyst Baur. “Because foreign products become more expensive, you then buy more domestic products. That is why inflation increases a bit, the central bank should react to it, increase the interest and that would make a currency stronger.”
Sign of the acute Loss of trust
The opposite is currently happening to the dollar. One reason, according to the Commerzbank analyst, is that it is not bilateral tariffs, but that the United States has practically found a trade war with the whole world. However, from the expert’s point of view, the risk of interventions in the rule of law of the United States and the inquiry to the independence of the central bank is much more decisive.
This destroys the trust of investors who are currently fleeing from the dollar and the US state bonds. Pension market expert Kopf from the Union Investment also speaks of a “sign of acute loss of trust” with a view to the recently increased returns on the bond markets.
What alternatives are there for the dollar and too US state bonds?
But what alternative to the dollar and the US state bonds that have so far been safe have investors? There is no alternative, says foreign exchange expert Baur from Commerzbank. Think first of the euro or the Chinese Renminbi, but from Baur’s point of view, both currencies have their weaknesses. “Europe does not have a common capital market. The Chinese capital market is very restrictive, it is difficult to get money out of the country.”
German government bonds are the ultimate in the euro zone, but compared to the American market for government debt, the market is significantly smaller. “The American government bond market is ten times larger,” said foreign analyst Baur. There can simply be more capital and moved than with federal bonds. Not to mention Switzerland or Sweden.
Escape to the gold market – all other markets too small
The first escape of investors seems to go to the gold market, which can be seen in the increased gold price. In search of alternatives to the US markets, there can be smaller bladder formation and stronger fluctuations in the near future, the foreign exchange expert believes. “Much stronger than you have it with an anchor currency like the dollar.”
