The Rest of the World’s Dollar-Weighted Return on U.S. Treasurys

Since 1980, foreign investors have timed their purchases and sales of U.S. Treasurys to yield particularly low returns. Their annual dollar-weighted returns, measured by IRRs, are around 3% lower than a buy-and-hold strategy over the same horizon. In comparison, the IRRs achieved by domestic investors are at least 1% higher, while the IRRs achieved by the Federal Reserve are similarly low. Our results are consistent with theories where foreign investors are price inelastic buyers of safe dollar assets, which provide them with convenience services.