Overview
Since the start of the second Trump administration, fears of de-dollarization and repeated talk of a broader “Sell America” trade have pushed the dollar’s global role back to the center of market and policy debate. Last year’s Liberation Day tariffs and recent international backlash against United States military operations in Iran have reopened questions about confidence in US policymaking and its impact on the dollar’s dominance in global markets. On the core metrics of monetary centrality, however, the dollar remains dominant: in 2025, it accounted for 56.8% of allocated global reserves, about half of international SWIFT payments, roughly 60% of foreign-currency debt issuance, and one side of 88% of global foreign-exchange transactions.
The real near-term risk is not that the euro or renminbi suddenly displaces the dollar, but that investors become less willing to treat US government debt as uniquely privileged safe collateral. Dollar dominance and Treasury “specialness” are not identical. The dollar can remain deeply embedded in global trade, funding, and payments even as investors demand more compensation to hold Treasuries. If that happens, the US does not lose the dollar’s international role overnight; instead, it loses part of the convenience yield that has long helped Washington borrow more cheaply than it otherwise could. Because Treasury yields anchor the benchmark risk-free rate used throughout the financial system, that shift would feed into a structurally higher overall cost of capital across the US economy. The real danger, then, is not monetary replacement but monetary repricing: a world in which the dollar remains central but Treasuries become less special, forcing both the US government and US firms to pay more to finance themselves.
The Dollar’s Global Role Remains Structural
The dollar’s position is unusual not because the US is simply the world’s largest economy, but because it combines macroeconomic scale with a financial architecture no rival has replicated. The dollar’s international role has been sustained for most of the last century by four reinforcing advantages: the size and strength of the US economy, openness to trade and capital flows, strong property rights and rule of law, and the unmatched depth and liquidity of US financial markets. Those advantages translate into a hard market structure. Compared with other international currencies in 2024, the dollar was used significantly more than any other currency—2.7x the euro and 20.9x the renminbi—even though the US accounted for only 26.1% of global GDP and 13.4% of global trade. The dollar accounts for 96% of trade invoicing in the Americas, 74% in Asia-Pacific, and 79% in the rest of the world outside Europe, as well as about 55% of international and foreign-currency banking claims.
The same dependence is visible on the credit side: dollar credit to non-bank borrowers outside the US reached $14 trillion at Q3 2025, with 55% of that stock in debt securities, and grew 7% year on year. The dollar’s position is not just a legacy of Bretton Woods or American prestige, but is reproduced every day through the practical decisions of global economic actors who continue to find dollar markets deeper, cheaper, and easier to use than the alternatives. No rival currency currently offers a comparable combination of scale, liquidity, institutional credibility, and safe-asset depth, which is why any dissatisfaction with US policy has not yet produced a credible alternative to the dollar. For that reason, the more important question is not whether the dollar is losing its central place in global business, but whether the securities underpinning that system still command the same premium they once did.
Why Treasury Specialness Has Weakened
The more immediate problem is the weakening of the special status of Treasury bonds within a still-dollarized world; the relevant distinction is between dollar convenience and Treasury convenience. The Treasury convenience yield reflects the nonpecuniary benefits of holding government bonds—their exceptional liquidity, collateral value in repo markets, low default risk, and regulatory usefulness—and when that convenience yield falls, yields must rise to compensate. A recent economic paper found that these two forms of US privilege have begun to decouple: while the dollar still exhibits strong global “specialness,” the convenience yield on US Treasuries has deteriorated sharply in international comparison. The report finds that the median five-year US Treasury premium versus G10 peers turned negative in 2012 and worsened materially after 2021, averaging negative 26 basis points (bps) from 2021 onward, compared with negative 7 bps during 2012–2020.
More strikingly, the report found that even the three-month and one-year Treasury convenience measures turned persistently negative after 2023 and concluded that the Treasury’s specialness “has largely disappeared.” This is a very different situation from the dollar losing its international role; it suggests instead that the world may continue to demand dollars, dollar funding, and dollar-denominated contracts while becoming less willing to treat Treasury securities as uniquely privileged relative to other advanced-economy sovereign debt. In other words, the US may keep the currency at the center of global business while losing some of the unusually cheap bond financing that once accompanied that position, which the US has leveraged to run large fiscal deficits for decades without broad consequences.
Treasury specialness has weakened because rising debt supply and policy volatility have made investors less willing to treat US sovereign debt as uniquely privileged. The most plausible explanation is that investors are being asked to absorb a much larger supply of US sovereign debt at a time when policy volatility has undermined confidence in Treasury reliability: as of January 2026, foreign investors held about $9.3 trillion of marketable US Treasury securities, equal to ~30% of the market. The same report found that the relative supply of government bonds between the US and other developed markets is a key driver of Treasury convenience, and that increases in the US debt-to-GDP ratio are systematically associated with lower Treasury convenience across maturities even after controlling for sovereign credit risk and global risk sentiment. More broadly, declining convenience yields appear to reflect both increased bond supply and growing concern about fiscal trajectories in advanced economies. That logic is especially relevant for the US, which is projected to run a $1.9 trillion federal deficit in fiscal year 2026, with debt held by the public rising to 120% of GDP by 2036.
The deterioration also appears in multiple market measures: AAA-Treasury spreads, swap spreads, and box spreads all point to a noticeable decline in Treasury convenience in recent years, with the drop especially pronounced at longer maturities. At the same time, Treasuries appear to behave differently in stress episodes than they once did. The report highlighted that Treasury convenience at the one- and five-year horizons used to rise during periods of global stress in the 2000s through the mid-2010s, but found that relationship turned significantly negative in the 2020s, suggesting that medium- and longer-term Treasuries no longer command the same automatic safe-haven premium. Episodes such as the April 2025 tariff shock reinforced that point: Treasury market liquidity worsened markedly after the Liberation Day tariff announcement, and the 10-year yield jumped 20 bps by the end of that week, even after the tariffs were partially rolled back. Further, there was a roughly 20 bps decline in the convenience yield against lower-debt sovereigns such as Germany, Sweden, and Australia. Treasury convenience is not the only driver of US yields, but its decline amid rising debt and unpredictable US policy appears to have a growing impact.
What Weaker Treasury Specialness Means for US Businesses
Shifting financial treatment of Treasury bonds matters because a weaker convenience premium points directly to upward pressure on US yields, and higher Treasury yields spill into the pricing of nearly every interest-rate-sensitive asset in the domestic economy. Treasury securities are not just a sovereign financing instrument; they are the benchmark risk-free asset on which much of the broader financial system is priced. Corporate bond yields are typically built on top of the Treasury curve, bank lending is influenced by the same underlying rate environment, and discount rates across asset markets adjust as the baseline return on safe assets rises. When investors become less willing to hold US government debt at unusually low yields, the consequence is not confined to Washington’s interest bill. It raises the economy-wide cost of capital.
Recent evidence suggests that this mechanism is already visible. After the Liberation Day announcement, no new investment-grade or high-yield offerings were announced for three consecutive days as credit spreads widened sharply, with average investment-grade spreads rising 24 bps to 120 bps and high-yield spreads jumping 119 bps to 461 bps. At the same time, benchmark 10-year Treasury yields climbed as high as 4.515% on April 9, and several investment-grade issuers that had been preparing to borrow chose to remain on the sidelines rather than pay what bankers described as a “massive premium.” If the risk-free curve rises, firms issuing bonds must either accept higher all-in yields or reduce issuance, lenders financing commercial projects must underwrite against a more expensive benchmark, and investors valuing future cash flows must apply higher discount rates, lowering present valuations and raising the hurdle rate that new investments must clear.
US firms could also face a structurally higher cost of capital than some overseas peers, especially in capital-intensive sectors that rely on long-duration financing, if countries with stronger fiscal positions begin to capture more of the convenience premium once associated with Treasuries, lowering their sovereign yields and, in turn, reducing private borrowing costs where corporate spreads are otherwise comparable. This dynamic would be especially damaging for US exporters, who would face higher borrowing costs while continuing to sell into a strong-dollar environment that makes their goods less price-competitive abroad.
The broader consequence is that the dollar’s global centrality can persist even as the domestic price of maintaining it rises. The US may remain the issuer of the world’s dominant currency while no longer enjoying the same degree of exceptionally cheap sovereign finance that once helped support lower borrowing costs more broadly. In that world, the erosion of Treasury specialness weakens the traditional link between dollar dominance and cheap American capital, making dollar leadership more expensive to sustain for both the state and the firms that borrow within its financial system. The real risk, then, is not that the US loses the dollar overnight, but that it retains the burdens of monetary primacy while enjoying less of its financial benefits.
