The ongoing rout in US Treasuries is being exacerbated by foreign central banks rapidly offloading their holdings, marking the fastest pace of such sales since the 2023 US banking crisis. This sell-off is driven by a combination of factors, including the need for some central banks to defend their currencies against depreciation and a strategic rebalancing of reserve holdings. The Bloomberg Dollar Spot Index's significant rise in the fourth quarter of 2024 suggests that central banks might be shifting towards non-USD assets, potentially to align with long-term allocation strategies.
The implications of this trend are multifaceted. As central banks sell USD-denominated assets, the increased supply of Treasuries pushes yields higher, making existing bonds less attractive and further depressing their prices. This dynamic could also strengthen the US dollar, which might reduce the competitiveness of US exports and negatively impact equities. Additionally, concerns over US policy and Federal Reserve uncertainty may be prompting these sales, increasing the risk perception of USD assets and driving demand for alternatives.
As of 02:00 on January 14, the yield on the 10-year Treasury note (TNX) remains steady at 4.80%, unchanged from its last close. The ongoing adjustments in global reserve allocations and the potential for further central bank interventions continue to loom over the bond market.