Why US yields continue to fall?

Carmen M. Reinhart and  Vincent Reinhart have written an excellent post in voxeu explaining why US Treasury yields are still in demand and as a result continue to fall. The summary says it all:

Why are investors rushing to purchase US government securities when the US is the epicentre of the financial crisis? This column attributes the paradox to key emerging market economies’ exchange practices, which require reserves most often invested in US government securities. America’s exorbitant privilege comes with a cost and a responsibility that US policy makers should bear in mind as they handle the crisis.

I had written a paper in Jan 2008 asking whether the crisis (it was sub-prime then) unwind the global imbalances? I don’t see it happening as demand for USD assets continue, despite a huge crisis and problems in US economy.

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