RBC Capital Markets said the downgrade of the U.S. credit rating by Fitch would have limited impact on the attractiveness of U.S. bonds and the dollar, as investors are expected to continue to hold large amounts of U.S. Treasuries.
Alvin Tan, head of Asia FX strategy at HSBC in Singapore, said some investors may have to reduce their holdings of U.S. Treasuries, especially non-U.S.-domiciled funds, although the reduction would be limited.
Since U.S. Treasuries are the largest and most liquid sovereign bond market in the world, it is inconceivable that the world’s large bond investors do not hold U.S. Treasuries at all.
The downgrade by Fitch has had a “very limited” impact on the dollar, and the refinancing plan that the U.S. Treasury Department is due to announce on Wednesday will have a bigger impact on the dollar by affecting bond yields.
Yields are likely to rise in anticipation of a flood of Treasury issuance.
