The “Sell America” Trade Isn’t A One-Off

"...foreign demand for Treasuries is under structural pressure at the same time the U.S. is asking the world to finance larger and larger deficits."

By Jim Nelson, SchiffGold

Tuesday’s market turbulence was a good reminder that the calm we saw for much of late 2025 was the exception, not the rule. In Japan, long-dated Japanese government bonds (JGBs) endured a disorderly selloff, with yields on the 30-year and 40-year rising more than 25 basis points in a single session. The cause was political: Prime Minister Sanae Takaichi pledged to suspend the 8% sales tax on food and beverages for two years ahead of a snap election, a policy Japan’s Finance Ministry estimates would cost roughly ¥5 trillion annually (about $32 billion per year). The move reignited concerns about deficit-financed issuance in a country already carrying an outsized debt load, and it spilled into global rates markets almost immediately.

At the same time, investors were forced to reprice geopolitical risk in a way that directly touches capital flows. President Trump threatened to impose additional tariffs on eight European nations unless the U.S. is allowed to “buy Greenland,” outlining an extra 10% import tariff beginning February 1 that would rise to 25% by June 1 if no deal is reached. Predictably, the escalation pressured global equities, undermined the dollar, and pushed investors toward traditional refuges—gold reaching fresh record highs amid a renewed “Sell America” dynamic.

The key point, in our view, is that this combination of shocks is not likely to be an isolated occurrence in 2026 or beyond. For weeks, realized volatility across the major U.S. risk complex had been compressed to unusually low levels, while positioning across many asset classes reflected a widespread assumption that policy shocks would remain containable. But Tuesday’s price action highlighted just how fragile that equilibrium is when the shocks are both fiscal and geopolitical—and when they directly implicate the willingness of foreign partners to keep financing U.S. deficits.

The Greenland dispute is especially important because it is not “just” a trade story—it’s a capital-flow story. When trade threats are used as leverage against allies, those allies naturally begin debating countermeasures that go beyond tariffs and into financial channels. Reuters reported European leaders discussing how to counter U.S. pressure, with analysts warning that “weaponization” of capital could be far more disruptive than a fight over goods trade alone. That matters because the Treasury market is not owned solely by domestic investors: foreign creditors own roughly a third of marketable U.S. Treasuries.

And whether the administration wants to acknowledge it or not, the market is already testing that vulnerability. In the middle of this week’s turmoil, Denmark’s AkademikerPension announced plans to divest about $100 million in U.S. Treasuries—small in size, but large in signal, because it shows the direction of travel: when political risk premia rise, “benchmark” allocations stop being automatic. The broader issue is that foreign demand for Treasuries is not a fixed constant; it is a preference that can change—sometimes quickly.

We have a recent case study in how quickly this can matter. Last April, Trump’s “Liberation Day” tariff announcements triggered what many observers described as a “Sell America” trade, in which stocks, Treasuries, and the dollar all weakened together—exactly the opposite of the “flight-to-quality” playbook investors typically expect in risk-off conditions. The bond market’s message was unmistakable: if policy uncertainty rises enough, even Treasuries can lose their safe-haven bid at the margin. That episode culminated in a tariff reprieve, underscoring the political reality that our trade partners and allies can impose constraints when they own large amounts of US assets.

This brings us to the larger structural backdrop: America’s enormous “investment deficit” with the rest of the world. The U.S. net international investment position (NIIP)—the difference between what Americans own abroad and what foreigners own here—was reported by the Bureau of Economic Analysis at negative $27.61 trillion at the end of Q3 2025. That is an extraordinary number in absolute terms and in practical terms: it reflects decades of the U.S. relying on the rest of the world to fund our consumption and fiscal shortfalls.

The argument is that the unwind of this imbalance began last year and is likely to continue, and two major drivers from the global rates landscape help explain why. First, Japan is no longer the world’s “free money” anchor it was when deflation and yield suppression were policy goals. As Japanese inflation and interest rates normalize, the incentive structure behind the classic yen-funded carry trade changes. Rising JGB yields shrink the relative appeal of buying Treasuries on a currency-hedged basis and raise the opportunity cost of keeping capital abroad. Tuesday’s violent repricing in the long end of the JGB curve is a preview of what that normalization can look like—and why it represents a durable negative demand shock for Treasury debt.

Second, Europe is moving into a higher-defense-spending era, which means structurally higher sovereign bond supply across the region. When governments issue more, domestic institutions—banks, insurers, pensions, and even central banks—are often “encouraged” (implicitly or explicitly) to absorb more of that supply. Put simply, a Europe that must fund re-militarization has less surplus capital available to recycle into U.S. deficits. In the aggregate, that’s another durable negative demand shock for Treasuries at exactly the wrong time for America’s financing needs.

China is an additional headwind. As U.S.-China trade shrinks and strategic decoupling deepens, the recycling mechanism that once turned China’s export earnings into incremental Treasury demand weakens. Less trade surplus with the U.S. means less structural need to accumulate dollar reserves, and more geopolitical friction reduces the desire to hold U.S. financial claims even when the capacity exists.

Now consider what’s happening on the U.S. side of the ledger: our demand for financing is rising even as foreign willingness to provide that financing is falling. The deficit is already running hot early in fiscal year 2026—Treasury reported the U.S. borrowed $602 billion in the first three months of FY 2026, and CRFB warned we remain on track for a nearly $2 trillion deficit this year. Meanwhile, analysis of the “One Big Beautiful Bill” framework suggests tax cuts are front-loaded while offsets are back-loaded, meaning the near-term fiscal impulse is larger than the later-year restraint; Reuters reported one model-based estimate that next year’s deficit could rise by roughly 0.8 percentage points of GDP due to the legislation’s mix of tax cuts and spending, we would argue it could be even more.

This is where monetary policy inevitably re-enters the picture. As issuance pressure rises, the Fed is already moving in ways that look and feel like “stealth QE,” even when labeled as technical reserve management. In December 2025, the Fed announced it would begin reserve management purchases concentrated in Treasury bills, and subsequent reporting and schedules have shown large ongoing purchase plans—tens of billions of dollars—aimed at maintaining “ample” reserves and stabilizing money market plumbing. When the Treasury leans more heavily into T-bills to fund deficits and the Fed becomes a recurring buyer of those same instruments, the direction of travel is obvious, even if the rhetoric insists otherwise.

Put all of this together and the message is straightforward: foreign demand for Treasuries is under structural pressure at the same time the U.S. is asking the world to finance larger and larger deficits. Against that backdrop, the unwind of America’s historic external imbalance is likely to continue, and the path of least resistance for adjustment is a weaker U.S. dollar, higher term premia, and a Treasury market that is increasingly dependent on policy support rather than organic global demand. That is a toxic mix for Treasury debt going forward.

For investors, the implication is not that “America is uninvestable,” but that concentration risk in U.S. bonds is rising at the very moment many portfolios are still built around the assumption that Treasuries will always be the unquestioned safe asset. In our view, this is exactly why investors should continue to diversify away from U.S. bonds and toward foreign assets—and, for true balance-sheet protection, increasingly toward physical gold as a portfolio diversifier and safety allocation. Notably, gold’s performance versus long-duration Treasuries over the last cycle has already reflected these dynamics. We are not arguing for a market crash in 2026, in fact we believe risk assets could perform quite well, but we would advise caution around owning the US Dollar and US Treasuries.

If you’d like to discuss how to reposition your portfolio to reflect these shifts, you can contact an advisor at Euro Pacific Asset Management today to learn how we can help you diversify into gold as well as other opportunities, including foreign stocks and foreign bonds.

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