“US(D) exceptionalism” is not going away

In this paper, we explore the enduring dominance of the US dollar in global bond and credit markets. While equity investors have recently shifted away from dollar assets, bond markets remain resilient due to high yields and limited alternatives. Central banks have been diversifying FX reserves since 2018, but structural constraints - such as gold’s volatility and the euro’s limited scale - make significant reductions in US dollar holdings unlikely. Credit markets are also heavily dollar-denominated, with even globally diversified segments skewed toward US issuance, particularly in the financial sector.