NEWYORK
Pension funds and insurers across six developed markets have hedged only 41 percent of their foreign-currency exposure to U.S. assets as of June 30, marking the lowest level since at least 2015.
The data covers Japan, Canada, Taiwan, Australia, Denmark, and Finland — markets that collectively hold a substantial portion of overseas U.S. Treasury and equity holdings. Japan alone accounts for roughly 10 percent of foreign Treasury holdings and ranks as the world's largest foreign holder; Canada and Taiwan also rank in the top 10.
A five-percentage-point increase in hedge ratios across these six markets would trigger approximately $230 billion in currency transactions estimates based on an aggregate $4.6 trillion in foreign-currency holdings.
Laura Coo head of macro credit at Nuveen, said, "Given the scale of foreign holdings of U.S. assets, it doesn't take a dramatic change in positioning to matter. Foreign investors hold a sizeable stock of U.S. assets, so even small shifts in hedge ratios can drive meaningful FX flows."
Investors have maintained this low hedging posture for much of the past decade, relying on the dollar's historical appreciation during market stress. That cushion has shielded losses on U.S. stocks and bonds when converted back to local currencies. High hedging costs also discouraged protection.
But both pillars of that strategy are now cracking. The greenback has declined roughly two percent this quarter and weakened against most Group of 10 currencies, driven by renewed focus on the debasement trade — the bet that U.S. fiscal and tariff policies will erode dollar value.
Treasury Secretary Scott Bessent's intervention supporting the yen and efforts to contain U.S. yields have heightened these concerns. Uncertainty over whether Federal Reserve Chair Kevin Warsh will raise rates to combat inflation — during President Trump's public preference for lower borrowing costs — has compounded hedging pressure.
The current under-hedge position contrasts sharply with last year's hedging surge following Trump's tariff announcements. That wave subsided as the dollar stabilized.
