A decline in foreign interest in U.S. debt is yet another signal that servicing the debt is going to be more expensive than it would otherwise be.

Via Bloomberg, more evidence to suggest that the U.S. dollar is losing some of its appeal as a safe haven.

Central banks have been selling Treasuries since March, suggesting that they are diversifying away from dollar assets, according to Bank of America Corp.

Treasuries held by global central banks and other official entities in custody at the New York Federal Reserve fell $17 billion in the week through June 11 on average, extending their declines since late March to $48 billion.

There are a number of reasons why this is unusual, and thus worth noting. As a rule of thumb, central banks buy dollars after a period of weakness, and that criterion has certainly been met. Year to date, the DXY (a dollar index calculated against a “basket” of major currencies) is down about 9.5 percent. Does this mean that these foreign sellers are expecting further falls to come? Making this decline more striking still is that it is occurring despite treasury yields that are rising — and rising relative to interest rates in other key markets.

As Desmond Lachman observes in an article in today’s Capital Matters:

The Federal Reserve has been sticking to a tight monetary policy while the European Central Bank and the Bank of China have been cutting interest rates to stimulate their economies. However, despite the widening of the short-term interest rate advantage to 2 ¼ percent in favor of the United States with respect to the eurozone, the dollar has been declining.

That’s not the approved script.

There’s little doubt that foreign demand for treasuries has been dampened by the turmoil over tariffs, as well as growing concern that the U.S. is accelerating toward dangerous fiscal territory — if it has not already arrived there. But beyond this, it seems clear that fiscal worries as well as some of the wider implications of America First (some of which Lachman discusses) are damaging the idea of the U.S. and, by extension the dollar and treasuries, as the ultimate financial safe haven, even at a time of geopolitical tensions on a scale that would usually draw foreign investors to dollar-denominated assets.

This matters. As Lachman notes, “foreign creditors own around one-third of the $29 trillion U.S. government bond market.” Their demand for the greenback, part of which is due to the dollar’s role as a safe haven, has helped the U.S. borrow more cheaply. It’s possible to make a case that it has made it too easy for the U.S. to borrow, but that’s a debate about the past. What matters now is how the U.S. is going to pay the interest on the immense pile of debt it has built up. A decline in foreign interest in U.S. debt is yet another signal that servicing the debt is going to be more expensive than it would otherwise be, and another warning light that is now flashing.