Bank of New York MellonpokerdoubleupGeoffrey Yu, of the bank's bank, said Asian central banks may sell U.S. Treasuries in the second half of the year to fund their currencies 'resistance to a stronger dollar.

The prospect of U.S. interest rates staying high for longer has boosted the dollar and made Asian policymakers worry that expensive imports will fuel inflation. The senior strategist cited global capital flow data from U.S. custodian banks as saying that any move to cash U.S. government bonds into U.S. dollars and then sell them in the money market could add to the already "weak" demand for U.S. bonds.

He said this could force the Fed to slow down its reduction of U.S. debt through quantitative tightening. His views are in line with Bank of America strategists. The latter believes that Japan's next intervention in the foreign exchange market is likely to use its holdings of US Treasury bonds.

"If they need to start liquidating some of their reserves as a buffer, and those reserves are U.S. debt, does the Fed want that to happen while managing its own policies," he saidpokerdoubleup？”

To be sure, global investors still highly over-allocate U.S. Treasuries, stocks and the U.S. dollar. Data for the week ending May 15 showed that central banks 'holdings of U.S. Treasuries increased from 2.pokerdoubleup$95 trillion dropped to 2pokerdoubleup..93 trillion US dollars, a decrease of approximately US dollars.

But Yu said expectations that a Biden or Trump presidency would expand the country's ballooning balance sheet to win over voters could also weaken demand later this year.

"For stability, a certain degree of fiscal restraint is needed," Yu said."Are we really hearing this now from the debate between the two sides? It may not be enough."