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Investing.com -- U.S. bond giant PIMCO has indicated that the current protectionist stance in U.S. trade policy strengthens the case for reducing exposure to the U.S. dollar and Treasury bonds. The firm suggests that foreign bond markets are becoming more appealing.
The tariffs imposed by U.S. President Donald Trump have caused significant turbulence in financial markets. This resulted in a sharp sell-off last week in Treasuries and the dollar, which has led to questions about the traditionally accepted safe-haven status of U.S. assets.
PIMCO executives Marc Seidner, chief investment officer for non-traditional strategies, and Pramol Dhawan, head of emerging market portfolio management, shared their views on the matter in a note on Thursday. They expressed that the U.S.’s protectionist policy shifts are prompting global investors to reassess their long-standing assumptions about the U.S. investment landscape.
Seidner and Dhawan noted that the U.S. has always held a privileged position, with the dollar acting as the global reserve currency and Treasuries as the primary reserve asset. However, they warned that this status is not guaranteed. If international capital flows into U.S. assets decrease, it could lead to a more diverse world with less reliance on a single reserve currency.
PIMCO, which manages approximately $2 trillion in assets, observed that the recent sell-off, which saw simultaneous declines in U.S. equities, the dollar, and Treasuries, mirrored dynamics typically seen in emerging market economies.
Seidner and Dhawan pointed out that the shift in global trade dynamics triggered by Trump’s policies could reduce capital flows into the U.S., thereby strengthening the case to be underweight, or hold a bearish stance, on the U.S. dollar.
In contrast, they suggested that long-dated foreign government bonds in Europe, the UK, Japan, or emerging markets, appear to be attractive alternatives to U.S. Treasuries.
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