Foreign investors still buying UST bonds

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.