While the prospect of President Trump de-escalating his trade war has triggered a market rally, there could still be a permanent loss of confidence in U.S. assets. So far, concerns about capital flight have focused on the government's debt, but the implications for stocks and the U.S. dollar could be more serious.

On Wednesday, money came rushing back into equities, bonds and the currency following news that Washington is considering slashing tariffs on Chinese imports. Though investors are justified in breathing a collective sigh of relief, concerns about erratic economic policy and the threat to the Federal Reserve's independence won't simply go away, and could justify applying a "risk premium" to U.S. assets going forward.

The reversal in international investment flows could be sizable, given how massive they have been in one direction. In Bank of America's December survey, the difference between the percentage of global fund managers who were overweight U.S. equities and those who were underweight was 36 percentage points, the highest on record.

In the April poll released last week, that number sank to a 36-percentage-point net underweight, following the largest-ever two-month decline. Respondents mentioned "a crash in the dollar because of an international buyers' strike" as a new danger.

Investors are particularly uneasy about Treasurys, underscoring that the U.S. needs to finance budget and current-account deficits amounting to 6.2% and 4.1% of gross domestic product, respectively.

China's stash of U.S. debt was officially $784 billion in February, and may be as large as $1.5 trillion including offshore accounts.

While there is little evidence that any of it has been dumped in retaliation for tariffs, the threat looms large.

However, it is the stock market that has arguably grown more dependent on foreign money. Since December 2011, overseas holdings of U.S. equities have grown from $3.8 trillion to $18.6 trillion, official data show, going from one-quarter to one-third of U.S. market capitalization.

Meanwhile, the percentage of Treasurys held abroad has fallen from 44% to one-quarter of the market, despite nominally rising 76%.

Moreover, foreigners often sell Treasurys during periods when they perform well and buy on dips, official data shows. This is because bonds aren't typically bought to generate huge returns, but to serve as portfolio ballast -- for example in 60/40 strategies -- or as liquid reserves. Treasury yields, which move opposite to prices, reached all-time lows after 2014, precisely as China started downsizing its U.S. bond coffers.

To be sure, foreigners have managed to rattle the market this time, and may apply a permanent discount to Treasurys if they see them as less safe.

But bonds are less sensitive to actual buying and selling than stocks, for which net foreign purchases and returns show a consistent positive link -- despite returns vastly outpacing flows.

That may sound odd, as any security that goes up or down in price must have someone trading it at the quoted levels. Yet the quotes need not be reacting to a big order flow: They may mostly be influenced by information that leads the market to change its view of future returns.

In the case of bonds, yields are anchored to the central bank's interest rate. This particularly applies to shorter maturities -- overseas investors' main focus -- but influences longer ones, too. Even if the Fed lost independence and tolerated more inflation, too steep a yield curve would still entice arbitragers.

The real concern would be an extreme scenario of the Trump administration or Congress allowing a default, but that remains a remote possibility.

Right now, for all the fuss about Treasurys, 10-year yields remain below February levels.

Stocks lack many of the self-correcting dynamics of the Treasury market. Yes, investors keep an eye on valuations, but fundamental value is anyone's guess.

In February, a forward price/earnings ratio of 22.5 for the S&P 500 was seen as justified. Now that long-run prospects have worsened, this has fallen to 18.7. Both are elevated by historical standards, and may partly be a rationalization of years of indiscriminate buying.

"Equities respond a lot more to sentiment, which is reflected a lot more in flow. Fixed-income owners are a lot less price sensitive: For example, central banks just want to hold dollars and put them somewhere safe," said Altaf Kassam, Europe head of investment strategy and research at State Street Global Advisors.

Worries about the Treasury market could be largely expressed through the exchange rate, which the Fed has less direct control over. Historically, there have been periods in which bond flows and the dollar moved in lockstep. At other times, higher Treasury purchases have been associated with a weaker dollar.

Indeed, since the early 2000s, the dollar has appeared more influenced by expectations about rates and returns on equity than flows, in part because some investors hedge the currency risk. This means the trade war's hit to Nvidia's profit may weigh on the dollar more than the mechanical impact of asset managers shifting from Nvidia to European defense stocks.

If that holds, currency depreciation may come quickly, not gradually as international investors take years to rebalance portfolios. For stocks, a return to ultrahigh valuations may prove difficult without the influx of foreign money.