Core Points - The US dollar index has experienced a significant decline of nearly 11% in the first half of this year, marking the largest drop for the same period since 1973 [1][2] - Factors contributing to the decline include persistent stagflation in the US economy, increasing risks of fiscal policy mismanagement, overextension of dollar credit, and accelerated global currency diversification [2][3] Economic Conditions - The US economy is facing a slowdown with signs of rising inflation, as evidenced by a 0.5% contraction in GDP in Q1 and a core PCE price index annualized rate of 3.5% [2] - Major financial institutions, including Goldman Sachs and JPMorgan, have raised the probability of a US recession to between 45% and 60% [2] Fiscal Policy Risks - The "Big and Beautiful" bill passed by Congress is projected to increase US debt by $3.3 trillion over the next decade, with federal debt expected to exceed $37 trillion by July 2025, potentially surpassing 123% of GDP [2][3] Dollar Credit Concerns - The US dollar's status as a safe-haven asset is being undermined by political pressures on the Federal Reserve, leading to diminished confidence in US monetary policy [3] - Market expectations suggest a higher likelihood of interest rate cuts by the Federal Reserve by the end of 2026, prompting investors to reduce their dollar holdings [3] Global Currency Trends - The dollar's share in global foreign exchange reserves has fallen to 57.7%, with gold, euro, and renminbi emerging as popular alternative safe-haven assets [3][4] - In May, the dollar's share in global payments dropped to 48.46%, while the euro's share increased to 23.5% [3] Credit Rating Downgrades - Major credit rating agencies, including Moody's, have collectively downgraded US debt ratings, marking the first time since 1917 that the US has lost its AAA rating across all three agencies [4] - This downgrade has weakened the dollar's position as a "global risk-free asset," leading to a shift in capital towards gold and non-US currencies [4] Central Bank Strategies - A survey of 75 central banks indicates that one-third plan to increase gold reserves in the next one to two years, with emerging market central banks showing particularly strong demand [5] - The proportion of central banks planning to increase euro reserves has risen from 7% to 16%, while the renminbi is expected to see its share in global reserves double to 6% over the next decade [6]

Core Viewpoint - The article discusses the recent fluctuations in U.S. Treasury yields and prices, highlighting the complex interplay between market dynamics, investor sentiment, and government policies, particularly under the Trump administration. Group 1: U.S. Treasury Yield Dynamics - U.S. Treasury yields had risen sharply, with the 30-year yield exceeding 5% and the 10-year yield reaching 4.50%, indicating a sell-off in the bond market [1][3] - The relationship between bond prices and yields is inverse; rising yields typically lead to falling prices due to supply and demand dynamics [1][3] - A significant factor in the recent sell-off was the forced liquidation by funds engaged in basis trading, which exacerbated the downward pressure on prices [3] Group 2: Market Sentiment and Government Influence - Despite the traditional view of U.S. Treasuries as a safe haven, recent events have led to a decline in confidence in U.S. assets, influenced by trade tensions and political pressures on the Federal Reserve [3][4] - The Trump administration's strategies, including tariff policies and public pressure on the Fed, have created a perception of instability, impacting market confidence [4][5] Group 3: Implications of Rising Yields - Rising Treasury yields increase the cost of new debt issuance for the U.S. government, potentially leading to a vicious cycle of increasing debt burdens [6] - The Trump administration has initiated measures to stabilize the market, including tariff adjustments and reassurances regarding the Fed's independence [6][7] Group 4: Changing Perception of U.S. Treasuries - The risk premium on U.S. Treasuries is increasing, with the market beginning to view them as risk assets rather than risk-free assets, primarily due to concerns over U.S. debt levels and the dollar's credibility [8][10] - The U.S. national debt has surpassed $36 trillion, with projections indicating that interest payments could exceed $1.2 trillion by 2026, raising concerns about fiscal sustainability [8][10] Group 5: Future Outlook and Alternatives - As confidence in U.S. Treasuries wanes, investors may shift towards alternative assets such as gold and non-U.S. currencies, potentially leading to a further decline in the dollar's share of global reserves [13][14] - The article suggests that while the risk of a direct default on U.S. debt is low, the ongoing price volatility and market sentiment could pose significant challenges for investors [14][15]