If you’re a developed nation, you don’t want to see your currency sell off at the same time as your debt trades heavy. That’s the stuff of emerging markets.

Generally speaking, higher yields on advanced economy sovereign debt should attract investors to the currency because even if the impetus for a given bond selloff is some manner of negative catalyst (as opposed to, for example, expectations for faster growth), the sort of existential concerns behind the often positive FX-bond correlation in developing economies are absent.

That’s why the October 2022 gilt selloff was so unnerving — it was accompanied by acute weakness in sterling, raising the specter of an emerging market-style meltdown for UK assets. Thanks to that exceedingly unfortunate episode, there’s now a name for bouts of concurrent developed nation FX and bond weakness: A “Liz Truss moment.”

That phrase was bandied about Tuesday both in the context of a veritable meltdown in JGBs catalyzed by Sanae Takaichi’s decision to call a snap parliamentary vote, and dollar weakness accompanied by higher Treasury yields amid Donald Trump’s escalating feud with Europe over his administration’s plans to annex Greenland.

At the lows, the dollar was off by nearly 1%, the largest decline since “Liberation Day,” while long bond yields were higher by as much as 10bps.

To be sure, most of the back-up in longer-end Treasury yields was a sympathy selloff with JGBs. But Trump’s antics certainly didn’t help.

“Trump’s comments regarding the use of tariffs against European nations opposing his ambitions in Greenland have also contributed to the selling pressure in Treasurys,” BMO’s Ian Lyngen remarked. “Greenland (and tariffs) have become the primary conversation at Davos and headlines from the event are serving as a reminder of the uncertainties associated with Trump 2.0 and the White House’s agenda.”

Recognizing the peril, Scott Bessent was in damage control mode. “I’m confident that this will work out in a manner that ends up in a very good place,” he said at the WEF, in a hilariously nebulous assessment of a situation that doubtlessly vexes him nearly as much as it does everybody else, even as he’d never say anything of the sort publicly.

Bessent feigned confidence and employed the derisively dismissive cadence he often uses to mock those who expressed concerns about USD capital flight in and around “Liberation Day.” “This is the same kind of hysteria that we heard on April 2,” he said. “There was a panic. And what I’m urging everyone to do is sit back, take a deep breath and let things play out.”

Everyone is indeed “taking a deep breath.” And holding it, in the hopes that Bessent’s boss doesn’t do something completely outlandish like, say, send an occupation force to Nuuk or threaten military action against Denmark.

“Europe owns Greenland, it also owns a lot of Treasurys,” Deutsche Bank’s George Saravelos wrote Tuesday, noting that “for all its military and economic strength, the US has one key weakness: It relies on others to pay its bills via large external deficits.”

Taken together, European nations are America’s largest investor, Saravelos went on. “In an environment where the geo-economic stability of the Western alliance is being disrupted existentially, it is not clear why Europeans would be as willing to play this part.”

Gold hit yet another new record high on Tuesday, extending what was already the largest gain among major assets in the new year.