Foreign Investors and U.S. Treasuries

50 Pages Posted: 27 Sep 2021 Last revised: 18 Nov 2021

See all articles by Alexandra Tabova

Alexandra Tabova

Board of Governors of the Federal Reserve System

Francis E. Warnock

University of Virginia - Darden Business School; National Bureau of Economic Research (NBER)

Date Written: September 2021

Abstract

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.

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Suggested Citation

Tabova, Alexandra and Warnock, Francis E., Foreign Investors and U.S. Treasuries (September 2021). NBER Working Paper No. w29313, Available at SSRN: https://ssrn.com/abstract=3931836 or http://dx.doi.org/10.2139/ssrn.3931836

Alexandra Tabova (Contact Author)

Board of Governors of the Federal Reserve System ( email )

20th Street and Constitution Avenue NW
Washington, DC 20551
United States

Francis E. Warnock

University of Virginia - Darden Business School ( email )

P.O. Box 6550
Charlottesville, VA 22906-6550
United States
434-924-6076 (Phone)

HOME PAGE: http://faculty.darden.virginia.edu/warnockf/index.htm

National Bureau of Economic Research (NBER) ( email )

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Cambridge, MA 02138-5398

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