What does a weaker US dollar mean for the bond market?

The US dollar weakened in April despite rising Treasury yields—a divergence from historical norms. The move followed the White House’s announcement of sweeping tariffs, sparking investor concerns over US growth and future returns. Fears intensified after President Trump suggested replacing Fed Chair Jay Powell, raising doubts about central bank independence. As a result, risk aversion grew, and investors pulled out of dollar assets. A weaker dollar may complicate the bond market outlook, says Charles Schwab. Although Fed rate cuts are still expected, foreign appetite for US debt could wane, opines the asset manager.

“From an investment point of view, diversifying internationally looks like it makes sense in this environment,” opines Kathy Jones, Chief Fixed Income Strategist, Schwab Center for Financial Research. “Although bond yields in most developed countries are lower than in the US, the gain in foreign currency returns can offset the yield gap. International diversification may also help mitigate volatility,” she adds.

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