Energy Shock Impact on Foreign Official Treasury Demand

The report analyzes recent net selling of US Treasuries by foreign central banks, attributing it to FX intervention amidst a US-Iran conflict and energy shock. It concludes these moves are tactical responses to USD strength rather than a structural shift away from US assets.

Key Takeaways

• 1.Recent net selling of US Treasuries by foreign official investors is primarily driven by currency management and capital outflow mitigation due to USD strength and the energy shock, rather than a structural shift in demand.
• 2.The impact of the oil shock is bifurcated: GCC countries saw initial net purchases due to higher revenues, while Asia and G10 regions faced current account deterioration and became net sellers.
• 3.Treasury demand is expected to see a tailwind once the US-Iran conflict ends and the prior Dollar weakening trend resumes.

Table of Contents

• The Energy Shock Impact on Foreign Official Treasury Demand
• Reviewing the evolution of foreign UST demand
• Early evidence on the Treasury demand response to the shock
• A return towards more normal demand patterns rather than a structural shift
• TRADE IDEAS
• Best Trade Ideas Across Assets
• Global Interest Rates Strategy

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