Former U.S. Treasury Secretary Janet Yellen said on Monday she was concerned that President Donald Trump’s tariffs and other policies were eroding allies’ trust in U.S. commitments, and that some investors were starting to shun U.S. assets.
Yellen told CNBC television that last week’s surge in yields on U.S. Treasury debt, which move inversely to prices, was troublesome given their traditional safe-haven status and called into question “the safety of what is the bedrock of the global financial system, namely U.S. Treasuries.”
“I don’t think we’re seeing dysfunction in the sense of liquidity completely drying up in the markets, but a pattern suggestive of a loss of confidence in U.S. economic policy and the safety of bedrock financial assets is really very worrisome,” Yellen said.
U.S. Treasury yields subsided on Monday after the Trump administration’s weekend disclosure that smartphones, computers and semiconductors would get at least a temporary reprieve from Trump’s highest China tariffs. The benchmark 10-year Treasury yield was down 8 basis points since Friday to 4.41%, but still up substantially from 3.99% on April 4.
Yellen said that she was pleased to see good results from last week’s 10-year and 30-year bond auctions, but she would not recommend shifting to more short-term bill issuance as a response to higher longer-term Treasury yields. She added that it was important to have regular and predictable issuance that meets market demand.
“So I don’t think that moving to bill issuance because you’re disturbed that long rates have gone up would be a sensible financing strategy,” she said.
Yellen repeated earlier comments that Trump’s tariffs and other policies were taking a “sledgehammer” to the U.S. economy and to U.S. alliances, citing doubts over its commitments to NATO, to Ukraine, and the U.S.-Mexico-Canada agreement on trade.
“So I really am worried about the United States becoming isolated, viewed as untrustworthy, and this creating an opportunity for China to work with some of our best allies – Japan, South Korea, others,” Yellen.
She said that she did not yet see a risk to financial stability arising, but added that the Federal Reserve had a range of liquidity facilities used in March 2020 at the start of the COVID-19 pandemic if such risks materialized.
Yellen added that she has not discussed her concerns with Trump’s Treasury Secretary, Scott Bessent.