In recent years, international finance and the global economy have become increasingly intricate, facing a multitude of unprecedented challenges and disruptions. A primary cause behind this heightened volatility lies in the implementation of the so-called “reciprocal tariffs” under Trump 2.0. These measures, along with a series of erratic, irrational, and counterintuitive policy maneuvers, have delivered significant shocks to the global financial system.

Significant structural changes have taken place in the U.S. Treasury market, particularly in terms of its key participants—changes that have been exposed amid recent market turbulence. Many of the major players in the Treasury market have increasingly relied on margin trading and leveraged strategies. This shift was a rational response to the prolonged period of ultra-low interest rates (0–0.25%), allowing institutions to pursue excess returns beyond what conventional trading could offer. As leverage accumulated over time, the sensitivity of dollar-denominated assets held by these institutions to price and interest rate fluctuations rose sharply. As a result, even minor disturbances in the market could trigger amplified ripple effects.

According to statistics, highly leveraged trading institutions—most notably hedge funds—now hold roughly 30% of the tradable U.S. Treasury bonds. The role of hedge funds and derivatives in amplifying financial risk drew significant attention during the 2008 financial crisis. In the aftermath, U.S. financial regulators introduced a range of measures that somewhat reduced the visibility of hedge funds in the financial system. However, the recent volatility in the Treasury market has once again brought them into the spotlight.

Some hedge funds engaged in basis trading strategies, though the structure of these trades differs considerably from conventional models. These funds built duration-neutral portfolios and used over 20x leverage through the repo market to achieve high yields, creating a new form of trading cycle. When Treasury prices experienced sharp fluctuations, these highly leveraged basis trades faced massive liquidations, rapidly transmitting risk across the broader market.

In April, the U.S. markets have recently witnessed a rare “triple decline” across equities, bonds, and the dollar—an event often referred to in financial analysis as a “triple-kill” scenario. In international financial research, whether such a synchronized decline occurs is often seen as a measure of a market’s maturity. Typically, in mature markets, equities, bonds, and currency markets display inverse correlations. For instance, a depreciation in the U.S. dollar doesn’t necessarily trigger a stock market drop; in fact, bond markets may see capital inflows, demonstrating a negative correlation among asset classes.

Historical data supports this trend. From 2018 to 2022, the average correlation between the U.S. equity market and the dollar index was around -35%. In 2023, it dropped further to -49%, implying that when the dollar weakened, there was nearly a 50% chance that U.S. equities would rise—an indication of market balance. However, in 2024, this inverse correlation narrowed significantly to -14%, reflecting a notable shift.

Japan has shown similar negative correlations during the same periods: -21%, -24%, and -18%, respectively—again, characteristic of a mature financial market. Emerging markets, on the other hand, tend to exhibit positive correlations. In these economies, declines in currency, equities, and bonds often happen simultaneously. While the smaller size of their bond markets limits the impact, the tendency toward positive correlation remains a key distinguishing feature between mature and emerging markets.

The current “triple whammy” in the U.S.—a market traditionally seen as mature—may be a significant signal that underlying dynamics are changing. Several structural issues lie behind this shift. The U.S. national debt has surged to $36 trillion, now exceeding 120% of GDP. Net interest payments on federal debt have risen to 14% of total fiscal expenditure. This is closely linked to the Federal Reserve’s rapid rate hikes in the post-pandemic period.
A short-term trigger was the weak auction of newly issued three-year Treasuries on April 8, with a bid-to-cover ratio of just 2.26—now considered the lowest in three years. While it may seem that demand still exists, this low coverage ratio has heightened concerns about the sustainability of Treasury issuance. Markets are increasingly worried about a surge in debt under Trump’s proposed fiscal policies. Investors are growing hesitant to absorb more government debt, and that fear played a role in amplifying the latest “triple whammy” scenario.

Although subsequent auctions for 10-year and 30-year Treasuries showed some improvement, indicating that long-term demand for U.S. debt remains relatively stable, the poor performance of the three-year note served as a catalyst for market-wide anxiety.

What’s driving market behavior now is a growing concern over the sustainability of U.S. debt and the safety of dollar-denominated assets. This shift in sentiment highlights the need for us to remain highly alert to the potential volatility of U.S. financial markets.

Back in 2008, I was working at Bank of China in New York and witnessed firsthand the shock of the subprime mortgage crisis. That crisis marked a turning point for the global economy—a new era began in the aftermath. The 2008 global financial crisis was the first systemic financial meltdown to originate from the core of the U.S. within the post-1945 global governance framework.

Historically, when we spoke of financial crises, we referred to emerging market crises—Latin America’s debt crisis, the Asian financial crisis, all originating in developing economies. But in 2008, the crisis broke out in the United States. At the time, there was widespread internal debate in the U.S. about what was happening—many believed the entire financial system was undergoing a meltdown. The market was “melting down,” and the foundations of the U.S. financial architecture were collapsing.

The aftermath was a global era of low growth, low inflation, and low interest rates—an environment that has lasted for 17 years and still has not been fully reversed. In this context of prolonged stagnation, populism began to emerge. During periods of high global economic growth, it felt as though everyone could share in the gains. But post-2008, especially in the U.S., many workers felt left behind, feeling that they had been deprived of opportunities. This sense of loss became one of the key social undercurrents fueling the rise of Donald Trump.

If we take a longer-term perspective, the current “triple whammy” in U.S. equity, bond, and currency markets may represent a potential inflection point. It could signal the beginning of a shift in the international monetary system. For the renminbi (RMB), this could open a rare and valuable window of opportunity—one that should not be overlooked.

As the first emerging-market currency to move toward internationalization, the RMB may now have a chance to take on a greater global role. But capturing this opportunity requires a comprehensive strategy. The evolution of the global monetary order is a long-term process; major currency transitions do not happen overnight. For example, it took over thirty years after the U.S. economy surpassed the U.K.’s before the dollar fully replaced the British pound as the dominant global reserve currency. It was a gradual shift.

Of course, today’s context is different. We are entering a new era, shaped by AI and rapid technological transformation. But even in this new environment, the fundamental logic of financial evolution still plays a quiet yet steady role beneath the surface. I believe the international monetary system can change—but it will take time. That’s why we need a well-planned, top-level national strategy to support RMB internationalization. This strategy should advance cautiously but steadily, balancing long-term goals with careful risk management in global markets.
I firmly believe that one day, the renminbi will become one of the world’s most important international currencies.

Editor: LQQ