“Yields are rising to reflect a risk premium, rather than healthy growth,“ Mark McCormick, North American head of foreign exchange strategy at TD Securities, told the WSJ. “People are concerned about how reliable a store of value the dollar is right now.”

U.S. budget deficit concerns

Specifically, observers are concerned about the U.S. budget deficit, which is at its widest level in six years after the tax cuts and other fiscal-stimulus measures enacted under the Trump administration. Moody’s Investors Service projects the budget gap to expand to 8% of gross domestic product by 2028, compared to less than 4% now.

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Furthermore, some central banks, sovereign-wealth funds and global investors may be reducing their U.S. dollar exposure as they diversify holdings, while others may have deemed their USD reserves sufficient to pass through any further risk of economic troubles.

For example, Goldman Sachs calculated that Russia’s central bank could may have dumped as much as $85 billion in dollar-denominated assets, including Treasuries, which may have been attributed to concerns over U.S. sanctions.

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