ICYMI: BREAKING: Canada’s Quiet Treasury Sell‑Off: Why It Matters for Trump’s Economy—and the Dollar

 

BREAKING: Canada’s Quiet Treasury Sell‑Off: Why It Matters for Trump’s Economy—and the Dollar Canadian investors have been selling of US treasury Bonds in DROVES this month and Washington is starting to shit their collective pants. Dean Blundell Oct 22 Canadian investors, with little or no confidence in the Trump economy, have been trimming their U.S. Treasury exposure in fits and starts this year. No drama, no headlines. Just a steady click of the “sell” button that makes Washington’s math a little harder. This Substack is reader-supported. To receive new posts and support my work, consider becoming a free or paid subscriber. The quiet part out loud Every month, routine data logs what cross‑border investors buy and sell. Buried in those spreadsheets: several months where Canadian investors (public and private) sold U.S. government bonds and, at times, Treasury bills. Some months they bought; some months they sold. But the pattern that stands out is a rotation out of longer‑term bonds and, in a few cases, into short‑term bills. Two clarifications up front: “Canada” ≠ only the Canadian government. These figures capture all Canadian investors—pension funds, asset managers, banks, and official accounts. One month doesn’t make a trend. But repeated months of softer foreign demand add up—especially when the U.S. is issuing a lot of debt. Why that’s a problem for “Trump’s economy” 1) It nudges long‑term interest rates higher When a big, reliable buyer steps back, the U.S. Treasury has to offer a bit more yield to clear auctions. Add that up across many auctions and many countries, and you’ve got tighter financial conditions without a single Fed meeting. Kitchen‑table translation: As long‑term Treasury yields rise, mortgage rates and business loans tend to follow. Even small changes bite. A 0.25% bump in a new 30‑year mortgage on a $400,000 loan adds roughly $65–$70 to the monthly payment; a 0.50% bump is about $135 more. That’s real money. 2) It fattens the federal interest tab America’s interest bill is already near historic highs. 37 trillion dollar deficit. Higher yields—whether from heavy issuance or less foreign demand—compound that bill. Dollars that could fund infrastructure, defense, or tax relief get diverted to interest payments. That’s fiscal drag in slow motion and Canadian investors aren’t dumb. 3) It makes markets more sensitive to surprises When the foreign “safety net” thins, Treasury auctions become more twitchy. A weak sale here, a sloppy bid there, and suddenly you’ve got term‑premium jitters rippling through mortgages, corporate bonds, and stocks. Even if the economy is otherwise healthy, the cost of money does more of the tightening. What’s actually going on in Canada? Think of Canada’s shift as portfolio housekeeping with consequences. Large institutions continually juggle risk: Less duration, more flexibility. Swapping some bonds and notes for bills shortens interest‑rate exposure and makes it easier to pivot if the outlook changes. Domestic opportunities. If Canadian yields or spreads look more attractive at home (or in non‑U.S. assets), a bit of U.S. selling helps fund those moves. Risk management, not a tantrum. This isn’t “dumping Treasuries.” It’s the sort of incremental repositioning big investors do all the time—just happening at a moment when U.S. supply is heavy, so the marginal impact is larger. Trump’s Rhetoric and inability to understand basic economic principles doesn’t make a smart Canadina investor excited about America’s financial future. If others join, what happens to the dollar? Let’s split this into near‑term mechanics and long‑run structure. If foreign investors sell longer‑dated Treasuries, yields rise, and real carry improves. Money that chases yield might buy dollars, at least for a while. Paradoxically, a softer foreign bid for bonds can strengthen the currency in the short run. If more reserve managers slowly diversify—adding a little more gold here, a little more non‑USD there—the dollar’s structural advantage shrinks at the margin. No cliff, no crash; think glacial change, not a waterfall. But glacial change over years still raises the U.S. cost of borrowing, which feeds back into growth, housing, and valuations. If several large holders all cut duration at once, term premia spike, auctions tail, and volatility jumps. Safe‑haven flows might initially support the dollar, but if the Fed has to step in to stabilize the market (or Trump has to go for investors to have any confidence in the US Bond market), the long‑run mix (higher debt, more intervention) can turn the dollar’s slow erosion into something more noticeable - like a deep recession or depression. What to watch (so you’re early, not late) Monthly cross‑border flow data: Are investors still rotating out of bonds and into bills, or has that stabilized? Foreign holdings snapshots: Big month‑to‑month shifts can be custody noise—but persistent declines across multiple countries are signal. Treasury refunding details: More coupon supply vs. bill heavy issuance tells you where the pressure lands. Mortgage rates vs. the 10‑year: If the spread widens, financing costs can bite even without a fresh rate hike. Central‑bank reserve composition and gold buying: Slow to change, but crucial to the long game. Nerd corner (for the policy and markets crowd) Flows vs. stocks: Flow data (who bought/sold this month) and stock data (who currently holds how much) don’t always line up. Custody shifts can move the “country” line without real selling. Bills vs. bonds: Selling duration (notes/bonds) but buying bills still tightens financial conditions by lifting term premia, even if “U.S. government exposure” is unchanged in headline terms. Term premium dynamics: With neutral rates uncertain and QE/QT footprints fading, the market needs more compensation to hold long duration. A thinner foreign bid amplifies that. Back‑of‑the‑envelope sensitivities: Every 25–50 bps move in the 10‑year that bleeds into mortgages can shave housing activity and risk appetite; every notch up in average funding costs pushes net interest outlays higher and narrows fiscal space. Policy levers: Treasury can lean a bit more on bills to reduce duration pressure; clearer fiscal paths and steadier inflation expectations compress term premia; central‑bank balance‑sheet choices matter on the margin. What’s not happening A run for the exits. The dollar still dominates global finance and trade invoicing. Network effects are massive; change is usually slow. A mass selloff of US T-Bills by the Canadian government is a one-shot arrow that we dangled 9 months ago. Carney’s Checkmate: How Canada's Quiet Bond Play Forced Trump to Drop Tariffs Dean Blundell · Apr 10 April 10, 2025 Read full story A simple story. Foreign demand is one piece of a big puzzle that includes Fed policy, inflation, growth, and fiscal deficits. But it’s a piece that’s easy to miss until it’s not. An savvy Canadian investors see the dead yield for US Bonds, so most chose the EU/Canada in USD to protect their investment. The bottom line Canada’s trim is a small but telling example of how today’s bond market works: the U.S. is issuing a lot because it’s broke. There’s a conman/felon in the White House who has the economic understanding of a Lama. The world is more price‑sensitive, and even friendly neighbors are managing risk by shortening up. For the Trump White House, that means higher long‑term rates at the margin, a fatter interest bill, and a bumpier road for housing and markets. AKA, An Economic DISASTER. If a few more big holders make similar moves, it won’t break the dollar—but it will keep turning the screws on America’s cost of money. This Substack is reader-supported. To receive new posts and support my work, consider becoming a free or paid subscriber.