- We believe the flight to safety argument in favour of US Treasuries is bogus. The whole point is that what used to be safe can no longer be considered so. Reserve managers know this and have been avoiding the stuff for months.
- It seems logical, and likely, that at some point yields will rise reflecting the obvious deteriorating creditworthiness of the US. Meanwhile, we expect risk aversion to make the dollar rally against developed markets peers, in contrast to consensus belief.
- In a new world without any one exclusive risk-free rate, the discount rate applied to well-funded capital self-sufficient economies will fall. After the initial volatility- and liquidity-related moves, that is what we expect to see happen. Asia looks well positioned in this sense due to its fundamental strengths of lower debt, external surpluses and higher growth.
Demise of the Dollar
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