(Bloomberg) — Asian central banks may sell US Treasuries in the second half of the year to fund the defense of their local currencies against a strong dollar, Bank of New York Mellon’s Geoffrey Yu said.
The prospect of higher-for-longer US rates has lifted the greenback and put policy makers in Asia on edge about costly imports stoking inflation. Any move to liquidate US government bonds for dollars that are then sold on the currency markets could worsen already “lacklustre” demand for Treasuries, according to the senior strategist, who cited the US custodian bank’s global flows data.
That could force the Federal Reserve to slow the pace at which it unwinds its Treasury holdings through its so-called quantitative tightening process, Yu said. His view aligns with Bank of America, whose strategists argue that any further intervention by Japan to stem the yen’s fall will likely require Treasury sales.
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