Australia’s Second-Largest Pension Fund Dumps U.S. Treasuries: Policy Risks Reshape Global Asset Allocation

TradingKey - Australian Retirement Trust (ART), the country’s second-largest pension fund, is significantly reducing its holdings of U.S. Treasury bonds, as it reevaluates its exposure to American assets across its A$330 billion (approximately $216 billion) portfolio. According to Jimmy Louca, Head of Dynamic Multi-Asset at ART, concerns over Washington’s policy-driven inflation risks are at the heart of this strategic shift.

Louca explained that while Fed Chair Jerome Powell has recently turned dovish, the expanding U.S. fiscal deficit and the potential for “Trump-style” trade policies pose a serious structural inflation risk — one that undermines the long-term safety of U.S. government debt.

This move is not isolated. It reflects a broader trend among major institutional investors, including several Asian pension funds, who are increasingly repositioning away from U.S. assets. Growing concerns over the Federal Reserve’s independence are becoming a key driver behind the so-called “sell America” trade.

Last week, President Trump’s attempt to remove Fed Governor Lisa Cook was widely seen as a direct assault on central bank autonomy. The incident sent the spread between 5-year and 30-year Treasury yields to its widest level since 2021, highlighting rising pressure on long-term rates.

Ron Temple, Global Investment Strategist at Lazard Asset Management, confirmed that discussions about reducing U.S. asset exposure have surged among his firm’s non-U.S. clients. “The bond market is sending a clear message,” he said. “Investors don’t want a politically influenced Fed.”

In response, ART has exited its previous bet on a steepening U.S. yield curve and is now turning to other high-quality sovereign markets. Louca believes that UK and Australian government bonds now offer better value.

He noted that Australia is more focused on fiscal consolidation, and its two key economic engines — mining and real estate — have stabilized, leading to more manageable inflation pressures. At the same time, he argued that the market’s reaction to recent food and energy price spikes in the UK has been overdone, making British gilts increasingly attractive.

Beyond U.S. Treasuries, the fund has also turned bearish on the U.S. dollar, shifting toward non-U.S. currencies like the Japanese yen and gold. Louca explained that whether through fiscal expansion or trade conflict, the White House’s policy mix is fundamentally dollar-negative. “Our portfolio adjustments,” he said, “are simply a reflection of that reality.”