US Treasuries:No More Assumed to Be Risk-Free Rate of Return

 

In Economics and Finance, there is the concept of risk-adjusted rate of return on investment. When Investment analysts calculate risk-adjusted rate of return on investment, formulas like the Sharpe Ratio and the Sortino Ratio are widely used. These  have an input component called the 'risk-free rate of return. (see Sharpe Ratio formula in image below). For decades, because of the dominance of the USD  in trade and its status as a safe heaven currency, and because the size of USD Treasuries market is so huge (much bigger than all the stock markets put together) and therefore infinitely liquid, the risk-free rate of return was assumed to be US Treasuries. However, the current antics of the MAGA Man has caused the USD to plummet, and the yield on US Treasuries to rise (which means their prices fall. Bond prices fall when yields rise) Would you hold US assets denominated in USD? So US Treasuries are no longer risk-free and the classical texbooks on Economics and Finance need to be revised? 

If no end to the Tariff War is in sight,  there is the likelihood that we will see a mass selling of the USD and US Treasuries not only by Japan and China with their vast holdings of USD and US Treasuries, but also by global institutional investors and even the common man holding US stocks (think of those MooMoo investors holding US Tech stocks.) We will see a gradual de-dollarization of the world economy, led by  China, the Middle-East oil countries and Latin American countries like Brazil. 

*Note on Intercontinental Exchange USD Index (.DXY). The U.S. Dollar Index is an index (or measure) of the value of the United States dollar relative to a basket of major foreign currencies such as Yen, Euro, Canadian Dollar, Great Britain Pound, Swiss Franc. No Chinese Yuan? That's just Western bias.