In his latest piece, Noah Smith sounds the alarm: the U.S. may be experiencing capital flight — something usually seen in fragile economies. Investors are dumping U.S. bonds, selling dollars, and moving their money abroad.
This is not normal.
Bond yields are rising, but the dollar is falling and that’s not just a curious market quirk. It’s a rare and deeply troubling signal.
A rare and troubling divergence that signals deep loss of confidence in U.S. financial stability.
Under normal circumstances, when U.S. Treasury yields increase, it means that government bonds are offering higher returns. That usually attracts investors from around the world, boosting demand for both the bonds and the U.S. dollar, since foreign buyers must convert their local currencies to dollars to purchase these assets.
But that’s not what has happened.
Instead, what we’re seeing is a decoupling of these two indicators.
Yields are going up — not because investors are excited about better returns, but because they’re dumping U.S. bonds, driving prices down and forcing yields up.
At the same time, the dollar is losing value, because those same investors are taking the proceeds from their bond sales and converting them into other currencies (euros, yen, gold) and moving their capital out of the United States entirely.
According to Noah Smith that’s not just risk aversion — that’s capital flight.
And the spark? Donald Trump’s new round of tariffs — dubbed “Liberation Day” tariffs — which jolted markets, created uncertainty, and caused a cascade of liquidations. Traders who had borrowed to make complex bets suddenly needed liquidity. The fastest way to raise cash? Sell Treasuries. But the scale and destination of those sales — abroad, not back into domestic assets — hints at something far more serious: a crisis of confidence in the financial and political direction of the United States.
If this continues, the consequences for the U.S. economy could be devastating.
NOTE:
The yield on the 30-year Treasury bond (abbreviated in jargon as 30Y or 30T) represents the effective interest rate that the US government must pay to investors who purchase a Treasury bond with a maturity of 30 years.
Specifically, what does it indicate?
- It is the cost of long-term debt for the United States.
- It is a measure of market confidence in American fiscal and political solidity over the very long term.
- It is also a key indicator for interest rates on mortgages, university loans, life insurance and other financial instruments tied to long time horizons.
What influences the 30Y yield?
- Expectations of future inflation: the higher the expected inflation, the higher the yield investors will demand to “hedge” themselves.
- The Fed’s monetary policy, even if the 30Y is less directly influenced than short-term securities.
- Global demand for “safe assets”: when there is global uncertainty, Treasuries are often safe havens. If demand falls, the yield rises.
- Fiscal stability: high public deficits or internal political tensions can cause the yields demanded by investors to rise.
When does the 30Y yield rise?
- Investors sell US Treasury bonds ? prices fall ? yields rise.
- This is a sign that the markets see greater risk or expectations of inflation in the long term.
- It can also reflect a radical change in the perception of American credibility as a debtor.