While foreigners are prominent in the Treasury market and in theoretical and empirical work, little is known about the nature of their Treasury portfolios. We provide novel evidence on foreigners' U.S. Treasury portfolios based on data not yet used by researchers: the security-level Treasury portfolios of foreigners and private U.S. investors. We find that private foreign investors earn above market returns and on a risk-adjusted basis both foreign private and foreign official investors outperform U.S. investors. Moreover, while foreign officials, with their broader objective functions, may well have inelastic demand, private foreign investors increase purchases of Treasuries and increase the duration of their Treasury portfolios when their sovereign yields are low or decrease relative to Treasury yields (that is, when CIP deviations decrease). Our results are so different from existing results that we close with a reconciliation exercise that provides a useful assessment of different sources of data on flows and holdings.
Authors
- Acknowledgements & Disclosure
- The authors thank Carol Bertaut, John Burger, Stephanie Curcuru, Wenxin Du, Chris Gohrband, Robin Greenwood, Kinda Hachem, Arvind Krishnamurthy, Karen Lewis, Gordon Liao, Hanno Lustig, Jesse Schreger, Annette Vissing-Jorgensen, Gwen Yu and Tony Zhang for helpful comments. Warnock thanks the International Finance Division of the Board of Governors of the Federal Reserve System for ongoing hospitality. The views in this paper are solely the responsibility of the authors and should not be interpreted as reflecting the views of the Board of Governors of the Federal Reserve System or of any other person associated with the Federal Reserve System. The views expressed herein are those of the author and do not necessarily reflect the views of the National Bureau of Economic Research.
- DOI
- https://doi.org/10.3386/w29313
- Published in
- United States of America
