Bond market moves raise fears of growing bets against America

“Everything in the U.S. is not doing well right now,” Kyla Scanlon, a financial educator and author of “In This Economy?: How Money and Markets Really Work,” told her TikTok followers this week. “The U.S. dollar is getting crushed.”

She chalked up the currency’s decline to “the erratic trade policy that we’ve seen,” adding: “Markets don’t believe that the U.S. has a stable or clear economic plan.”

Neel Kashkari, president of the Federal Reserve Bank of Minneapolis, flagged similar concerns.

“Normally when you see big tariff increases, I would have expected the dollar to go up. The fact that the dollar is going down at the same time I think lends some more credibility to the story of investor preferences shifting,” he told CNBC on Friday.

There are several other possible explanations. One has to do with the way hedge funds bet on bond markets. Another could be that investors are anticipating a run-up in inflation and demanding higher interest rates now so they don’t lose money in the future.

“Maybe they feel, or the market feels, that the actions around tariffs are actually going to create upward inflationary pressure,” said Douglas Boneparth, president of Bone Fide Wealth, an advisory firm in New York. “That very well could be part of the puzzle here.”

Even experts who are more hesitant to assign a cause to the bond sell-off say geopolitical factors are hard to ignore.

“The idea of other countries turning away from America, I don’t want to go down that rabbit hole necessarily,” said Lee Baker, founder of Claris Financial Advisors in Atlanta. “But in this particular instance, America turned away from everybody else” with steep new trade barriers.

For now, Baker and other wealth advisers are cautioning clients not to react hastily to the recent volatility. Younger investors who aren’t close to retirement — and typically have less exposure to the bond market — should stay the course, Colley said.

“Making sure that you’re in an appropriate asset allocation for your stage in life” and building up some emergency savings can help create a “financial moat that will insulate any investor at any point in their investing career from feeling panic around what’s going on in the stock market,” she said. If possible, she recommends keeping at least six months’ of cash on hand for a rainy day.

Older retirement savers can consider some protective measures, Baker said.

His firm has been building buffer exchange-traded funds — so-called “defined-outcome” ETFs tied to options contracts — into clients’ portfolios. These funds tend to be more expensive and typically cap potential gains, but they offer robust downside protections and have seen a recent surge in interest. BlackRock launched a new iShares buffer ETF earlier this year, billing it as a way of “mitigating risk while participating in market growth.”

Baker added that “there’s a whole lot of other stuff in the world beyond stocks and bonds” to consider investing in, such as real estate, infrastructure and private equity. But he cautioned that it’s usually a good idea to consult a qualified adviser first, partly to avoid making important money moves out of fear.

“It’s probably not a good idea to go whole hog in any of these,” he said, “but we can certainly reduce your downside while giving you some upside with a combination of these things.”