Foreign investors still buying UST bonds
At a Glance
The desk observes that despite a temporary halt in the dollar's upward momentum, foreign private investors are significantly increasing their purchases of U.S. Treasury bonds, which is a critical factor in the ongoing dynamics of the FX market. Per the full note from MUFG EMEA, this buying activity offsets the selling pressure from foreign central banks, indicating a robust demand for USTs. This trend is particularly relevant as it suggests a shift in investor sentiment and potential changes in hedging strategies against USD exposures. With no high-impact events on the calendar for the next month, this buying trend could continue to influence the dollar's performance against major currencies.
Key Takeaways
- 01Private foreign investors continue to buy UST bonds, supporting the dollar.
- 02Dollar gains have been limited due to various factors, including geopolitical tensions.
- 03Market participants might be reassessing their FX hedging strategies.
Full Analysis
What the desk is arguing
The recent increase in UST bond buying by private foreign investors suggests a continuing confidence in US debt, even as foreign central banks reduce their holdings. This dynamic has implications for the dollar, particularly in the face of recent positive sentiment following the US-China trade war de-escalation. Investors may be reassessing their hedging strategies against the backdrop of this evolving landscape.
Moreover, the moderation of the dollar's gains indicates that while geopolitical developments can create short-term fluctuations, the underlying bond market fundamentals, particularly the demand from private investors, are critical in supporting UST prices. This resilience highlights that the foreign demand is robust, even if central banks are recalibrating their strategies.
Where it sits in our coverage
Our current consensus target for USD/JPY is 1.075, with a trading range anticipated between 1.04 and 1.12. This view aligns with the recent commentary suggesting that private foreign investment in USTs is buoying the dollar, while diverging from any immediate bearish sentiment driven by central bank selling.
- JPMorgan has set a target of 1.10 for Mar-26, reflecting a belief in dollar strength amidst foreign demand for USTs.
- Citi projects a slightly lower target of 1.08, acknowledging the complexities in the market.
- Goldman Sachs also backs a 1.09 target, supporting the dollar's potential resilience in current conditions.
How other firms see it
Viewpoints from other institutions reveal a mixed outlook regarding dollar strength. While some firms concur with the sentiment of sustained foreign investment in USTs, others remain cautious about the dollar's immediate trajectory.
- Bank of America has a more cautious stance with a target of 1.04, indicating skepticism towards the dollar's strength in the near term.
- Barclays aligns with a target of 1.07, suggesting moderate confidence in upcoming moves.
Overall, the commentary reflects a nuanced perspective in the market, with strong factors supporting the dollar's upcoming performance amidst evolving external conditions.
Market Implications
The persistence of foreign investment in UST bonds can provide a stabilizing force for the dollar, even if sentiment fluctuates due to geopolitical developments. A robust foreign demand may alleviate some pressure stemming from central bank sell-offs, potentially impacting future USD trading dynamics significantly.
EUR/USD — All Desk Targets
| Firm | Stance | YE 2026 |
|---|---|---|
UOB | Neutral | 1.1450 |
Citi | Bearish | 1.1000 |
MUFG | Bullish | 1.1800 |
From the original
Derek Halpenny, Head of Research Global Markets EMEA & International Securities talks to Jack Greenslade in FX Sales about the move in financial markets this week following the US-China trade war de-escalation announced on Monday. Derek explains why the dollar gain petered out qu
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