Normalising the radical. It was once upon a time outlandish to even imagine that the US would force some of America’s foreign creditors to swap their bills and other short-term US debt into ultra-long “century bonds” paying lower (or zero) interest to (a) ease the US’s financial burden and (b) weaken the dollar, in exchange for American security guarantees and lower tariffs. This is the essence of the hypothetical “Mar-a-Lago Accord”, which has made its rounds thanks to a paper by Stephen Miran (current chair of the Council of Economic Advisers to the Trump administration) referencing the work of Zoltan Pozsar, founder of the Ex Uno Plures research firm.

Roots in history. The “Mar-a-Lago Accord” is clever wordplay, given that major accords around the dollar and the economic system have been named after the resorts where they were discussed (Bretton Woods in 1944, Plaza Accord in 1985); Mar-a-Lago being the resort that is owned and frequented by President Trump for his own high-level meetings. The clear concern today is that such a restructuring of America’s debt load is part of the Trump administration’s broader agenda to reorder global trade and the dollar in the interest of “America first”. Should this thesis become reality, one could imagine an exodus of dollar-denominated assets, leading to (a) rapid weakening of the dollar and (b) spiking of bond yields as the haven status of treasuries gets called into question even before its implementation.

Raison d'être. Why such a radical proposal has even seen the light of day is because the strong dollar has been blamed for the gradual erosion of export competitiveness of US domestic manufacturers, resulting in the hollowing out of the US industrial base. The dollar’s unnatural strength is in turn a result of reserve accumulation by US trading partners, provided “generously” by the persistent deficits that the US government runs. Therefore, US trade partners “should” shoulder some of the interest burden of the reserve currency if they wish to continue to participate in this global trading system that is largely denominated in USD.

Although such speculation is concerning, we think the odds of implementation are still very low. Firstly, there is no doubt some comparison with the Plaza Accord – given that it is the most similar multilateral dollar-weakening policy to come to mind. However, one must note that the environment today is completely different from that of the 1980s. US Debt-to-GDP remains at c.120% now vs c.40% in the 1980s, driving concerns around the debt market today that did not exist back then. Moreover, the Plaza Accord was drafted among close post-WWII allies such as Japan, Germany, UK, and France. With geopolitical relations fraying in preference for more unilateral policies, such coordination would be much more difficult to push through today.

Secondly, this could end up being a classic case of cutting off your nose to spite your face. The last we checked, debt extensions and coupon reductions fell into the realms of default and restructuring; attaching an “accord” to the name doesn’t make it otherwise. Of the c.USD29tn in US Treasury securities, only c.USD7tn are owned by foreigners (with China holding less than USD800bn). “Sacrificing” treasuries with the Mar-a-Lago Accord would hurt the bulk of US pension funds, state and local governments, and mutual funds which hold (a) domestic savings and are (b) not influenced by trade/tariffs. A run by these investors from USD assets might ultimately overwhelm foreign holders.

Thirdly, with inflation expectations already high under tariffs, a weakening dollar would only add fuel to the fire. Looking at the priorities of Treasury secretary Scott Bessent, inflation-fighting measures need to take precedence, including (a) increasing oil production, (b) deregulating the private sector to improve productivity, and (c) fiscal conservatism. Until inflation is contained, we believe that weak-USD policies would come against the administrations near-term objectives.

Fourthly, President Trump himself has praised the reserve status of the dollar and threatened tariffs on economies that seek to move away from using the greenback in trade, and is unlikely to take measures to hurt confidence in the currency. This is perhaps why he set up the Department of Government Efficiency (DOGE) on the day of his inauguration; some modest form of austerity is ultimately preferable to the more irreversible consequences of a Mar-a-Lago Accord.

Stay with a credit duration barbell. The recent yield spikes and sharp dollar weakness has left investors once again jittery about the fixed income markets. Nonetheless, we remain confident that the credit duration barbell of 2-3Y and 7-10Y investment grade (IG) credit would form a robust portfolio for bond investors given the uncertainty. 2-3Y credit remains a pillar of resilience, generating coupon income with low volatility. The steepening of the yield curve and wider spreads also imply that value has once again emerged in 7-10Y IG credit. If the Trump administration is indeed pivoting from a Loose fiscal/Tight monetary to a Tight fiscal/Loose monetary policy regime, the lowering of growth from the fiscal impulse and declining rates should remain a tailwind for bonds. Lastly, we would once again caution against ultra-long duration (>15Y) bonds as a bet for lower rates. Such talk of treasury maturity extensions – while remote – still represents an acknowledgement that “black swan” risks remain with US debt. Investors should certainly not wait around for such swans to appear.