As the U.S. dollar surges in value, it’s creating a host of problems for other countries because of the greenback’s outsized role in international finance. One example: a large majority of long-duration sovereign and corporate debt is denominated in U.S. dollars.
Taiwanese insurers are major investors in U.S. dollar-denominated debt. Citing data from the Taiwanese Insurance Bureau, foreign investments have grown nearly 322% there over the past 10 years, outpacing the 111% growth in the U.S. investment-grade market over the same time period, notes Eric Beinstein, head of U.S. credit strategy at JPMorgan. That translates to some $688 billion, a majority of which JPMorgan believes is invested in long end of U.S. high grade market. He said Taiwan regulators this week allowed local insurers to reclassify their holdings in a way equivalent to moving to “held to maturity” from “available for sale.” With the average long-end high-grade bond down 33% this year, “this shift should have a material positive impact from an accounting/capital standpoint, much reducing the possibility of a U.K.-like need to sell rapidly.” Accounting rules are one reason the U.S. is not facing the same trouble as the U.K. Analysts at UBS point out t …