Interpreting the shifts in capital flows was hardly easy when it involved deciphering the actions of relatively taciturn reserve managers
Save time by listening to our audio articles as you multitaskTen years ago “official” foreign investors—mainly central banks managing their currency reserves—held $3.4trn in American Treasuries, about three-quarters of all Treasuries held abroad. Anyone wanting to understand the huge flows in and out of dollar bonds therefore kept an eagle eye on the big reserve managers.
Reserve managers are a tight-lipped bunch, and rarely explain precisely why their holdings have changed. But some of the recent declines are likely to reflect simple valuation effects. The dollar has strengthened; as a result, holdings denominated in other currencies, such as the euro, are worth fewer dollars. Some reserve managers have also intervened in the market by selling their holdings in order to limit currency depreciation.
As a consequence, the share of Treasuries owned by official investors has fallen, to 58% of all Treasuries held abroad. Private foreign holdings make up the rest, and have risen from $1.1trn to $2.8trn over the past decade. Sales and purchases of Treasuries by private investors can swamp those made by official investors, as recent trends have made clear. Official investors sold $36bn in Treasuries to American punters in the first three months of this year.
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