The US has traditionally benefited from the exorbitant privilege to publish the reserve currency of the world and the benchmark safe assets in the form of treasury. But the evidence is increasing that the country at least on the treasury market that has lost exorbitant privilege may be forever.
I wrote down some time ago My Column Reuters That I was worried about the decline of the proceeds of the treasury ease compared to German bunds after liberation day. This convenience revenue measures the difference in yield between a ‘synthetic’ treasury note built by investing in Bunds Plus Swaps and simply buying a treasure chestnut. As you can see in the column, this convenience yield is currently negative, which means that possessing the actual treasury (the real thing) pays a higher yield than owning a synthetic ‘fake’ batter box. This is not how it should be.
If treasuries are the world’s reserve assets, people must keep treasuries downright instead of a synthetic version. That is why it is called the convenience yield in the first place. You will receive a lower yield for the sake of convenience that you do not have to keep a German bund and a few swaps in your portfolio, and the privilege of giving your money to the most creditworthy government in the world.
Historically this has been the case, such as the graph below, from a study by Zhengyang Jiang and his employees illustrates.
Convenience yields from treasuries with different maturities
Source: Jiang et al. (2025)
But as you can also see in the graph, this convenience yield has steadily deteriorated. And indeed, there is an important driver of the decreasing convenience revenue: the rising mountain of the US.
The convenience yield decreases as the American debts rise
Source: Jiang et al. (2025)
As the American debt BBP ratio rose, the convenience yield of American treasury and eventually became negative. The effect is stronger, the longer the maturity of the treasury remarks, which is logical, because the chance that the US will fail over time.
However, the fact that the convenience revenue has become negative also means that the US no longer benefits from the exorbitant privilege to borrow at lower rates than other countries. Indeed, a negative return on the convenience translates directly into higher loan costs for the treasury in the future, because it tries to finance his shortage.
And they say that the death of our exceptionally is not real …
#Lost #privilege