Key Highlights

• iFlow shows unequivocal evidence that cross-border investors have been shedding USD assets since April 3, the day after tariff announcements
• Cumulative selling of USTs has been persistent since the beginning of the year and is starting to reaccelerate
• Waning cross-border U.S. asset demand is likely to persist

Foreign Investors and USD Assets

EXHIBIT #1: CROSS-BORDER SELLING OF USTS SINCE APRIL 2

^{Source:BNY Markets, iFlow}

Our iFlow data confirms that cross-border investors are exiting U.S. dollar-denominated financial assets. Last week, our U.S. Treasury flow registered its third largest outflow by foreign-based investors since the early days of the pandemic. As Exhibit #1 shows, cross-border outflows from USTs have been almost entirely across the yield curve, with only the very long (10y and higher) segment seeing inflows from abroad.

The sharp sell-off in bond yields, with the 10y note pushing up to 5.7% intraday at the end of last week, has keyed speculation in the markets of foreign shedding of USD-based assets and musings about “de-dollarization”, or the beginning of the end of the USD as a global reserve currency. Even with the DXY U.S. dollar index moving below 100, we think that discussion is premature from a long-term structural economic perspective. There is no doubt that U.S. assets, including Treasuries, are seeing increased selling pressure.

Exhibit #1 shows average daily flows (on a scored basis) for different yield buckets on the curve and cash and short-term instruments (“CAST”) since April 3, the first day after the administration announced sweep universal and retaliatory tariffs. While the selling – save for the very long end – has been unequivocal, it is hardly a recent development. 

EXHIBIT #2: FLOWS WEAKER SINCE BEGINNING OF YEAR

^{Source: BNY Markets, iFlow}

Exhibit #2 shows cumulative cross-border flows into (or out of) USTs over the past twelve months, starting on April 12, 2024. We accumulate overseas flows every day, allowing us to see the ebbs and flows of foreign demand. In mid-2024, after the resolution of the debt ceiling crisis, we see a large jump in foreign inflows into USTs, primarily due to a slew of T-bill issuance that occurred upon the debt ceiling’s resolution. From that point on, save for a few brief and discernable episodes – like October 2024 and late December last year- foreign demand has been tepid at best. By the end of 2024 and early 2025, we have observed persistent and sustained selling by foreign domiciled real money investors, reaccelerating after early April 2025.

EXHIBIT #3: EXITING US FIXED INCOME

^{Source: BNY Markets, iFlow}

We have seen evidence of foreign selling across other USD assets as well. In U.S. equities, selling by cross-border investors has been persistent since late 2024. Across non-UST fixed income assets, we see selling in MBS securities, munis, and corporate bonds over the past 5 days. This shedding of USD-denominated assets is broad based, as seen in Exhibit #3.

Forward look

Foreign investors exiting USD denominated assets, especially in fixed income, has been a feature of post-election U.S. markets. However, since April 2, it has accelerated and become broad-based, which we don’t think is a short-lived phenomenon. While U.S. economic policy uncertainty remains at historically high levels and U.S. asset volatility is similarly elevated, investors remain skittish.  Additionally, the Federal Reserve argues that rates are on hold until clear signs of weakness in U.S. growth data emerge.