The "Sell America Trade", QT, and Foreign Banks

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The current U.S. administration has taken unprecedented steps to alienate allies and partners even as it reduces the appeal of living and investing in the U.S.While markets briefly seemed to be pricing in some of these changes in early April, by many accounts, the moment of the “sell America trade” seems to have passed. The prices of stocks, bonds, and currencies—although not precious metals—have all reflected strong demand for U.S. assets since April.But it would be wrong to conclude from this that foreigners have ignored the regime shift in the U.S. Since July, foreign banks have been shedding assets held in their U.S. branches and agencies at one of the fastest rates on record.1 This has coincided with a sharp pullback in funding of these branches and agencies from “related foreign offices”.The shift has gone largely unnoticed for two reasons.First, it is still relatively small compared to the growth in foreign banks’ U.S. exposure since early 2020, even if the rate of change is substantial. As of November 5—the latest available data—net debt owed by the U.S. offices of foreign banks to their HQs or other foreign subsidiaries had only dropped back to the levels of late 2024/early 2025. Second, the cutbacks have coincided with the ~$500 billion decline in deposits held by all banks at the Federal Reserve since the Treasury began rebuilding its own cash holdings after the debt ceiling was raised in July. The recent federal government shutdown also restricted spending relative to tax receipts, causing the Treasury General Account (TGA) to rise even further at the expense of…