We get used to an environment that may have existed for a decade and assume the recent past is the norm, yet we often find cases where recent history is the exception. Look at the reserve accumulation around the world, and we are seeing that high reserves as a means of protecting currencies after the Asian currency crisis in 1997-98 may be a thing of the past. This has implications for the dollar and for US Treasuries. There is less need for safe reserves, so this key source of demand is gone.
We are seeing significant purchases of dollar securities from foreigners, but the flows are in private equity, bonds, and government bonds. These buyers are likely more price-sensitive and profit maximizers. This suggests they should react more strongly to news. Unfortunately, it is not clear who the end buyers are. This demand could come from hedge funds with offshore assets owned by US citizens. Nonetheless, dollar flows will be more sensitive to news and less stable.
No comments:
Post a Comment