Namrata Sen
3 min read
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More than 200 Central banks and foreign entities have withdrawn a substantial amount of U.S. Treasuries from the New York Federal Reserve, signaling potential concerns over the stability of the U.S. dollar.
What Happened: The New York Fed’s custody holdings of U.S. Treasuries and other assets have seen a significant decline. The holdings dropped by $17 billion last week and have plummeted by $48 billion since late March, coinciding with the onset of the trade tensions sparked by President Donald Trump‘s tariffs, reported Fortune
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Bank of America‘s managing director and U.S. rates strategist, Meghan Swiber and fellow strategist, Katie Craig, expressed significant concern over the withdrawal of foreign private investors from the Treasury securities market. Swiber and Craig commented, “This drop is unusual.”
Typically, the cash generated from the sale of U.S. debt is placed in the New York Fed’s reverse repurchase facility, where it is exchanged for Treasuries as collateral. However, that trend has recently reversed, with foreign participation in the facility declining by $15 billion since late March. This points to a notable reduction in U.S. assets held by foreigners at the Fed — roughly $63 billion in just over two months.
Swider told Fortune, "We're of the view that deficits are going to continue to climb higher in the coming years, and what we struggle with is, ‘Who is going to help support that higher level of supply?”
As per Torsten Sløk, chief economist at Apollo Global Management, foreign buyers constitute about 30% of the U.S. Treasury market, and any decrease in their participation could compel the Treasury to offer higher yields to attract buyers, affecting interest rates across the economy, reported Fortune.
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Why It Matters: The recent withdrawal of U.S. Treasuries by central banks and foreign entities adds to the growing concerns about the stability of the U.S. dollar and the potential impact on the global economy. This trend has been accompanied by a rise in Treasury yields, which could signal a weakening of foreign demand for U.S. debt, further exacerbating the situation.
