If foreign investors en masse are gorging on U.S. Treasuries, central banks may be beginning to lose their appetite.
Official U.S. flows data show that overseas private sector investors – banks, asset managers, insurance funds, pension funds, retail investors – are loading up on Treasuries while the official sector’s holdings are flat-lining at best.
As long as this active or de facto retreat from central banks is more of a whimper than a bang, the $26 trillion U.S. government bond market should be relatively unaffected. One group of buyers is simply replacing another.
But it may come with a price – a rising ‘term premium.’ That’s the amorphous amount of compensation investors demand for buying long-dated bonds instead of rolling over bills. It is the premium for unquantifiable risks in the future beyond current assumptions on the long-term path of inflation or policy rates.
Price-sensitive buyers with more of an eye on…
