Doomsday Shadows Over the Dollar and U.S. Treasuries: Treasury Sales Pressure and Private Credit Risks Looming

TradingKey - Following the U.S. Treasury storm and the dollar's collapse in April, even with a rebound, the market appears unlikely to quickly regain confidence after such tsunami-like financial volatility. This episode may signal the beginning of a new world order or a new investment paradigm.

As of writing (April 28), the 10-year Treasury yield has retreated to 4.258%, still not fully returning to the approximately 4% level seen earlier in April. Meanwhile, the U.S. Dollar Index (DXY) remains below the 100 mark, although it ended a four-week losing streak last week.

Despite the rebound, analysts at Brandywine noted, "We’re in a new world order. Even if Trump backpedals on the tariffs, I think uncertainty levels are still going to be elevated. So that means term premium stays elevated."

The term premium refers to the additional compensation investors demand for holding long-term bonds. During April’s Treasury storm, bond investors began questioning the traditional safe-haven status of U.S. Treasuries, demanding higher yields. So-called "bond vigilantes" contributed to this shift by pushing rates higher.

Looking ahead, the market will focus on the Treasury’s upcoming bond issuance plan, set to be released this week, and the progress of Trump’s proposed tax cut bill. Increased bond supply could exacerbate downside risks for Treasury prices.

Further declines in Treasury prices—or a rise in U.S. interest rates—would pose greater challenges for the government, as newly issued bonds would require higher interest payments.

Additionally, the Financial Times highlighted another major concern: the surge in private sector debt and leverage over the past few years. As this debt matures, high interest rates could make it difficult for companies to roll over obligations, creating significant financial risks.

Corey Frayer, former senior advisor for financial stability at the SEC, warned that if a large volume of private credit comes due during a downturn in the business environment, it could lead to a wave of bankruptcies.

Amid tariff policy impacts, Wall Street expects U.S. consumer activity to slow, with economic growth decelerating or even entering a recession. The Atlanta Fed’s GDPNow model recently estimated that U.S. Q1 2025 GDP growth would contract by -2.5%.