The Rest of the World's Dollar-Weighted Return on U.S. Treasurys
23 Pages Posted: 10 Jan 2022 Last revised: 14 Oct 2022
Date Written: September 21, 2021
Since 1980, foreign investors have timed their purchases and sales of U.S. Treasurys to yield particularly low returns. Their annual dollar-weighted returns, measured by IRRs, are around 3% lower than a buy-and-hold strategy over the same horizon. In comparison, the IRRs achieved by domestic investors are at least 1% higher, while the IRRs achieved by the Federal Reserve are similarly low. Our results are consistent with theories where foreign investors are price-inelastic buyers of safe dollar assets, which provide them with convenience services.
Keywords: safe assets, exorbitant privilege
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