Wu Fang-Ming's Perspective: Is the U.S. Credit Being Repriced?

From the surge in U.S. federal debt to $40 trillion, rising Treasury yields, and the depreciation of dollar assets in the 'Sell America' phenomenon, global markets are signaling a revaluation of 'U.S. credit.' The global financial order is facing another test.

America's greatest asset isn't the dollar, but its credit. Since World War II, America's rise to global financial dominance wasn't just due to having the world's largest economy or the dollar being the international reserve currency. The dollar system's key support was global investors' trust in U.S. credit.

This trust created a unique financial cycle. Countries earned dollars through trade and invested them in U.S. Treasuries. America then used continuous issuance to finance fiscal deficits, reinvesting the funds into global markets, creating a dollar and capital circulation.

Thus, America's greatest asset isn't the dollar, but the market's belief that America will always fulfill its promises. However, recent policy signals from Washington have made the market reconsider this.

'Sell America' has resurfaced as a key discussion on Wall Street. This narrative involves investors reducing their exposure to U.S. core assets, selling U.S. stocks, bonds, and the dollar.

Due to fiscal issues, trade wars, and ongoing Middle East conflicts, some market participants are re-evaluating their preference for U.S. bonds and the dollar, fearing that U.S. policies may become unpredictable again.

Unlike last year's short-term panic caused by tariff policies, this time the market is concerned about the system itself. On one hand, new Federal Reserve Chairman Kevin Warsh advocates reducing policy forward guidance, hoping the market will rely on data rather than central bank verbal commitments. On the other hand, the U.S. Treasury, in collaboration with Japan for the first time in nearly 30 years, intervened in the foreign exchange market to stabilize the yen.

Viewed separately, both actions have reasonable explanations. But together, the market sees U.S. policies becoming unpredictable.

Financial markets have always feared uncertainty more than bad news. Thus, the 'Trump Premium' is being incorporated into the risk assessment of the dollar and U.S. Treasuries.

What concerns the market is that America has little room for error. Currently, U.S. federal government outstanding public debt has officially surpassed $40 trillion. What does this number mean? It's about 1.4 times the U.S. GDP for 2025, estimated at around $29 trillion.

More notably, debt grew from $30 trillion to $40 trillion in about 4 years, and from $39 trillion to $40 trillion in just over 4 months.

The problem isn't just the rapid growth of debt, but the explosive expansion of interest expenses. According to the Congressional Budget Office (CBO), federal government payments on public debt will exceed $1 trillion for the first time in fiscal year 2026. In 10 years, 4 to 5 dollars of fiscal revenue may need to be used to pay 1 dollar in interest.

In other words, America is facing a situation where it's being chased not by the principal, but by the interest. This means that America's past model of sustaining its finances through continuous issuance is facing real constraints.

U.S. Treasuries aren't ordinary bonds; they're the 'master switch' of global finance. Global stock valuations, corporate financing, mortgage rates, futures margin, repo markets, and central bank foreign exchange reserves are all built on U.S. Treasuries. Whether it's 10-year or 30-year Treasury yields, they are the 'risk-free rate' for global asset pricing.

If yields continue to rise, it means all global assets must be revalued. Thus, the Treasury market isn't part of the financial market; it's the foundational infrastructure of the entire financial system.

When the 30-year Treasury yield broke 5%, the highest since 2007, the market wasn't worried about bonds, but about the loosening of global asset valuations.

In other words, U.S. Treasuries are the 'gravity' of all global assets. The underlying logic is that the value of any asset is the discounted value of all future cash flows that U.S. Treasuries can generate. The discount rate is determined by Treasury yields.

Yields are the 'gravity' that determines the price of all assets relative to lying still. The 30-year Treasury yield is the global benchmark for long-term funding pricing. When the 30-year Treasury yield rose from around 2% in 2020 to over 5% today, the 'gravity' of all global assets doubled. Goldman Sachs and Morgan Stanley's models show that if the 30-year Treasury yield rises to 6%, U.S. stocks may face a 15-25% correction; if it rises to 7%, it may trigger a 30-40% crash.

Imagine standing on a planet where gravity suddenly doubles, making everything heavier and less valuable.

The biggest challenge to dollar hegemony is the rising cost of credit. While many commentators discuss whether dollar hegemony is ending, currently no currency has enough market depth, liquidity, and institutional trust to fully replace the dollar.

However, what's changing in Washington is that global capital is now demanding higher credit costs from America. In other words, America can still borrow money, but borrowing will become increasingly expensive.

This problem is reflected in recent markets. The 30-year Treasury term premium has risen to the highest level since 2013; the dollar index has fallen from its high, depreciating against major global currencies, while Treasury yields have risen simultaneously, a combination rarely seen in the past.

In short, the market is demanding higher risk premiums; 'American exceptionalism' hasn't disappeared, but it's becoming more expensive.

This U.S.-Japan joint intervention in the foreign exchange market also reveals another signal. On the surface, Japan wants to stabilize the yen, and the U.S. agrees to assist. The deeper consideration is to prevent Japan from selling large amounts of U.S. Treasuries to raise intervention funds.

As of May this year, Japan still holds over $1 trillion in U.S. Treasuries, making it the largest foreign holder. Therefore, the U.S. wants to maintain not just the yen exchange rate, but also the world's largest foreign 'buyer' of U.S. Treasuries doesn't become a 'seller.'

The phrase 'Supporting the yen, protecting U.S. Treasuries' circulating in the market sums up the essence of the U.S.-Japan joint intervention.

Currently, there are no signs that the dollar will quickly lose its position as the world's leading reserve currency. Foreign holdings of U.S. Treasuries still exceed $9 trillion, and the U.S. capital market remains the deepest and most liquid in the world.

However, global capital is now demanding more risk premiums, higher yields, and more policy transparency to hedge and manage risks.

In other words, America no longer enjoys the nearly cost-free credit premium it has had for the past few decades. This isn't a complete denial, but a revaluation.

Financial history repeatedly proves that the sustainability of a financial hegemony isn't about its ability to print money, but about the market's willingness to believe in its credit.

The dollar remains the world's most important currency, and U.S. Treasuries remain the world's most important safe asset. These facts won't change in the short term. However, when policy uncertainty, continuous fiscal deficit expansion, and market trust in institutions begin to loosen, global capital will start recalculating risks. The scary part is the uncertainty and the need to pay a higher price for credit.

The 'Sell America' currently being discussed in the market isn't just about selling the dollar and U.S. Treasuries, but about selling trust. In particular, the nearly unconditional trust in U.S. credit. This is the new starting point that the global financial order is focusing on.