Profound shifts in the structure of US debt holdings and the maturity profile of federal liabilities are raising questions about the resilience of the USD as a cornerstone of international currency and debt markets, writes DekaBank’s head of Short Term Productsm for Equity Finance & FX.
In a recent article, he explains the evolving composition of US federal debt, the risks created by rising short-term financing needs, and the potential systemic consequences.
Since 2000, the share of Treasuries held by “Others” has roughly doubled, and this reflects three deeper structural trends: fragmentation of capital markets; regulatory shifts; and opacity and shadow banking.
“The growing ‘Others’ share is a mirror of financial market fragmentation and the silent emergence of a more opaque Treasury demand structure,” he wrote.
While there is no imminent default risk, he highlighted risks of inflation, credibility loss, and dollar devaluation; political instability; and that market turbulence could escalate.
“The U.S. Treasury market is not about to implode — but it has become more fragile. As we move deeper into a world of structural fiscal deficits, evolving market participants, and short-term refinancing needs, the “safe asset” may behave less safely under stress,” writes Cyrus.