US Treasury Yields Fall to 4% as Dollar Index Hits Six-Month Low

TLDR

• 10-year Treasury yield fell to 4%, its lowest level in six months
• US Dollar Index (DXY) dropped to 102, a six-month low
• Trade war concerns and tariffs may create a “supply shock” in the US
• Gold reached all-time highs with market cap of $21 trillion
• Bitcoin held support at $82,000 despite economic uncertainty

The yield on the 10-year US Treasury note briefly touched 4.0% on April 3, down from 4.4% a week earlier. This marks the lowest level for long-term US government debt yields in six months. The drop comes as investors react to growing concerns over the global trade war and the weakening of the US dollar.

At the same time, the US Dollar Index (DXY) fell to 102, its lowest level in six months. On Thursday, the index dropped even further to $101.96, marking a 1.78% decline. This represents the lowest value since early October.

The euro, which is the largest component in the index, gained 1.5% to reach a six-month high of $1.1021. Other currencies also showed strength against the dollar, with the Swiss Franc rising 2.14% and the Japanese Yen increasing by 1.80%.

Impact of Tariffs on Economy

The recent decline in both Treasury yields and the dollar can be attributed to President Donald Trump’s announcement of new reciprocal tariffs. These tariffs are set to take effect on April 9 and have prompted speculation about multiple interest rate cuts by the Federal Reserve this year.

Axel Merk, chief investment officer at Merk Investments, explained that tariffs create a “supply shock.” This means reduced availability of goods and services due to rising prices causes an imbalance relative to demand. The effect is stronger when interest rates are declining.

This combination potentially paves the way for inflationary pressure. In such a scenario, the appeal of fixed-income investments like bonds diminishes significantly. Investors may look for alternative assets that offer better returns.

Alternative Assets Gain Appeal

As the dollar weakens and concerns about inflation rise, alternative assets are becoming more attractive to investors. Gold has already surged to consecutive all-time highs, reaching a market capitalization of $21 trillion.

Higher gold prices allow previously unprofitable mining operations to resume. They also encourage further investment in exploration, extraction, and refining. As production expands, supply growth will naturally act as a limiting factor on gold’s long-term bull run.

Bitcoin is another alternative asset that may benefit from the current economic situation. While at first glance, a higher risk of economic recession might seem negative for Bitcoin, lower returns from fixed-income investments encourage allocations to alternative assets, including cryptocurrencies.

Bitcoin’s Resilience

Despite the worsening global economic uncertainty, Bitcoin has shown remarkable resilience. The cryptocurrency managed to hold its support level at $82,000. This is an encouraging sign of its strength in the face of market turbulence.

Over time, traders are likely to reduce exposure to bonds, particularly if inflation rises. This could potentially lead to significant inflows into alternative assets. If just 5% of the world’s $140 trillion bond market seeks higher returns elsewhere, it could translate into $7 trillion in potential inflows into stocks, commodities, real estate, gold, and Bitcoin.

The trade war could also lead to a gradual shift away from the US dollar, particularly among countries that feel pressured by its dominant role. Japan, China, Hong Kong, and Singapore collectively hold $2.63 trillion in US Treasuries. If these regions choose to retaliate, bond yields could reverse their trend.

This would increase the cost of new debt issuance for the US government and further weaken the dollar. In such a scenario, investors would likely avoid adding exposure to stocks, ultimately favoring scarce alternative assets like Bitcoin.

Deutsche Bank Research expressed concerns in a note, stating, “The safe haven properties of the dollar are being eroded and this is imposing a significant cost on unhedged dollar holdings.” They added, “Developments since the start of the year make us worried about a broader undermining of confidence in the U.S. economic outlook.”

Investors are now turning their attention to Friday’s nonfarm payrolls report. This could provide further insight into the Federal Reserve’s next policy move. The path to a Bitcoin all-time high in 2025 remains plausible despite current market uncertainties.