Talk of ‘Sell America’ has flooded headlines and market commentary in recent weeks, fuelled by concerns about rising US debt, political uncertainty under Donald Trump’s “America First” agenda and signs of waning foreign appetite for US assets.
Yet despite the noise, there is little evidence of a large-scale sell-off in US government bonds.
Instead, fixed income investors and managers say the greater risk for investors lies not in a collapse of the US Treasury market, but in prolonged periods of poor real returns, driven by inflation, heavy issuance and a weakening dollar.
Not default, but dilution
While US Treasuries have lagged European government bonds so far this year, David Roberts, co-portfolio manager of the Nedgroup Global Strategic Bond Fund, says this largely reflects a normal reversal of last year’s gains.
Treasuries, he adds, continue to be driven far more by domestic policy decisions — what the president, the Treasury and the Federal Reserve do — than by marginal shifts in overseas demand.
Why Treasuries still matter
James Sullivan, head of partnerships at Tyndall Investment Management, says US Treasuries still function as core collateral in global markets, even if demand at the margins has softened.
“Default risk can rarely be ruled out entirely,” he adds, “but it is very much a very modest tail risk. The risk isn’t in not being paid back, it’s being paid back less in real terms.”
That concern is increasingly reflected in market pricing.
Sullivan argues that a rising term premium better explains recent weakness in Treasuries, as investors demand greater compensation for inflation risk and the sheer volume of issuance expected.
In that context, strong gains in gold prices may point to unease about the erosion of real value rather than fears of outright default.
US Treasuries may therefore continue to trade at a premium — but they are not invincible.
Politics raising the volume
Political uncertainty has added to the debate.
The Trump administration’s confrontational approach to trade and diplomacy has unsettled markets, though some investors argue the way policies are executed matters more than their stated objectives.
Will McIntosh-Whyte, Rathbone multi-asset portfolios fund manager at Rathbones, describes Trump’s approach as closer to aggressive negotiation tactics designed to create leverage than to signal imminent policy rupture.
“Markets are often more unsettled by how policies are implemented than by their underlying aims,” he says.
Debasement rather than default
Meanwhile, Peter Doherty, head of fixed income at Titan Wealth, notes that the US is running a substantial budget deficit, adding to a gross debt burden widely accepted to exceed $30tn.
While the combination of high debt and persistent deficits appears unsustainable over the medium to long term, he says Treasury yields of around 4 per cent suggest markets see no serious risk of default.
“Even if non-US investors decided to sell US Treasuries in meaningful quantities, there are a number of levers the US could pull in the short term,” Doherty notes.
These include expanding the Fed’s balance sheet or relaxing leverage ratio constraints for major US banks, potentially facilitating large-scale purchases of government debt.
The US pension system also provides a steady bid for secure income, helping absorb issuance. “That capital base could, and indeed does, take down a lot of US government debt,” Doherty adds.
What looks like default “hiding in plain sight”, he argues, is the gradual debasement of the US dollar. “There is little to no need for a formal default through non-payment of interest or principal if the value of what is being repaid is itself collapsing in real terms,” he says.
He points to strong gains in gold, silver and other hard assets in recent years as evidence of that erosion. “There is a limit to how much people will put up with in this regard,” Doherty adds.
“If you look at US investor returns in 2025 through the lens of a denomination in the euro or gold, there was a significant loss of purchasing power for US investors, albeit one mostly felt outside the US.”
Doherty argues that the US risks abusing its “exorbitant privilege” as issuer of the world’s reserve currency. “If the currency is strong, why sell it?” he says, “but if the currency is weak — why hold it?
“As difficult and expensive as it may be to implement a substantial move away from the US dollar, at some point there could be a quiet but meaningful shift, after which momentum could build and a reckoning may ensue.”
Eroding confidence
Roberts at Nedgroup echoes similar sentiments, arguing that the greater risk for investors is not default but a loss of real value driven by fiscal expansion and aggressive monetary policy.
“As a result, a genuine loss of confidence would likely involve a weaker US dollar, rising gold prices and US Treasuries underperforming, even if US equities remain strong,” he says.
“The US has defaulted many times [historically],” Roberts adds, referring to episodes such as debt ceiling stand-offs and the abandonment of the gold standard, “although outright default is less likely for the remainder of my career”.
“There has been an erosion of confidence,” he says. “I’ve heard city folk say, ‘but there’s no alternative’. That’s rubbish. There are plenty of other markets to make money in.”
He suggests it would be plausible for investors to continue favouring US equities while shunning Treasuries. “A clear signal of a genuine loss of confidence is a weaker dollar and surging gold,” he says. “We have those, but it’s far too early to call the end of America.”
The UK and a weaker dollar
A weaker dollar and declining confidence would also have implications for the UK.
If investors avoid US government debt, UK bonds could outperform and the Bank of England’s base rate could fall.
However, Roberts cautions that such outperformance would likely be defensive rather than a sign of economic strength.
“That would probably come at the cost of weaker global growth, lower employment and softer consumer spending,” he says.
While Doherty says investors should expect a gradual erosion of real value across the US government debt market, with some areas more affected than others, he argues that inflation-linked bonds offer greater protection against the loss of purchasing power, while short-dated bonds and Treasury bills are particularly vulnerable.
Longer-dated bonds may continue to sell off, pushing yields higher and increasing government borrowing costs, but offering some compensation to investors through higher returns, albeit with greater volatility.
Sullivan, meanwhile, says short-term yields have remained relatively stable ahead of expected Fed rate cuts, but that modest yield curve steepening reflects inflation expectations and concerns over fiscal deficits and bond issuance.
He adds that Tyndall has taken a more defensive stance, keeping bond duration shorter than benchmark.
The Trump effect
Despite the headlines, Trump-related risks do not yet appear to be priced into US Treasuries. This is partly because the administration is widely seen as wanting to push yields lower.
Sullivan argues that political risk is rarely a lasting driver of developed market bond pricing. “Whatever warrants being priced in is already priced in,” he says. “Markets tend to assume there is always a degree of political risk and behave with some short-term volatility, but rarely does political risk become a permanent factor.”
He points to the UK’s 2022 “mini”-Budget under Liz Truss as an example of how market stress can fade once policy credibility is restored.
Nevertheless, Trump’s public criticism of the Fed and its leadership remains a concern. Fed chair Jerome Powell’s term expires in May 2026.
McIntosh-Whyte says one key risk is the perception of compromised Fed independence.
If markets felt someone was appointed simply to cut rates regardless of economic conditions, that would not be taken well and would likely steepen the yield curve.
As yields approach certain levels — around 5 per cent, for example — that becomes problematic for equity markets.
McIntosh-Whyte says: “The administration is very aware of that, [given how much US household wealth is tied up in equities].”
Fiscal importance
He also highlights that fiscal discipline is becoming a pressure point across developed markets. “Bond investors are increasingly unwilling to tolerate loose fiscal policy,” he says, forcing governments to balance political priorities against market credibility.
Jason Da Silva, portfolio manager at Arbuthnot Latham, agrees that fiscal policy and inflation are the key drivers of bond markets, downplaying day-to-day geopolitics unless they feed directly into deficits or inflation.
While his team has not made significant changes to its positioning in US government bonds, Da Silva says it has shifted more meaningfully on currency, adopting a weaker dollar view.
“That reflects both valuation concerns and a changing global growth backdrop, with parts of Europe and Japan beginning to narrow the growth gap with the US,” he says.
Any significant shock to US bonds would not be contained domestically. The ripple effects would be felt across global bond and currency markets, spilling into other asset classes.
While there is no immediate catalyst for a disruption or dislocation in the US Treasury market, Doherty says investors should remain open to the possibility of a disruption and be diversified in their portfolios.
He notes that the US is the global hub for innovation and new business, so the federal deficit and debt need to be considered in that context: “It’s very easy to get bearish and concerned about systemic collapse, but the asset side of the (overall) balance sheet is very strong.
“The gap is between private and federal, and while that gap will not easily be closed, there is an extraordinary asset pool estimated to be well in excess of $100tn.”
The world may be debating the end of US Treasury dominance. But for now, the market is not there. Yet.
Ima Jackson-Obot is deputy features editor of FT Adviser