Bank of New York Mellon: Asian central banks may sell US bonds in the second half of the year to defend the local currency

Breakings ·  May 18 01:44
Bank of New York Mellon's Geoffrey Yu said that the Asian Central Bank may sell off US Treasury bonds in the second half of the year to provide funds for the local currency to withstand the strengthening of the US dollar. The prospect that US interest rates will remain high for longer has boosted the dollar and made Asian policymakers worry that expensive imports will spur inflation. The senior strategist quoted the US custodian bank's global capital flow data as saying that any move to convert US government bonds into US dollars and then sell them on the money market may worsen the already “weak” demand for US bonds. He said that this may force the Federal Reserve to slow down the pace of reducing its holdings of US debt through quantitative austerity. His views are in line with Bank of America strategists. The latter believes that the next time Japan interferes in the foreign exchange market, it is likely that it will use its US treasury bonds. However, Yu said that after becoming US president, Biden or Trump will expand the country's expanding balance sheet to win over voters, and this expectation may also weaken demand later this year. “For stability, a certain level of financial restraint is needed,” Yu said. “Are we really hearing this from the debate between the two sides now? Probably not enough.”

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