While US treasuries continue to rally amid euro-sovereign contagion, currency markets reveal a more accurate picture of global investors’ attitudes towards US assets and economic governance.
Steven Englander, global head of G10 foreign-exchange strategy at Citi in New York, explains that foreign owners of US assets face greater risks than domestic bondholders, because the fiscal debate is conducted in US domestic political terms. This is a game conducted by the Federal Reserve in which foreign investors hold few cards.
Collateral damage
Furthermore, the US government’s lack of fiscal reform at a critical moment could cause more serious and permanent collateral damage to international investor confidence.
“Foreign investors want to see US macro policy normalized.
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