Europe holds about $8 trillion of US Treasuries, bonds and equities. Markets now worry a Greenland dispute could trigger a mass sell-off and strain US funding (Ed. note: $8 trillion is cited as Europe’s total dollar exposure).
On Tuesday, Treasuries sold off and yields rose to a four-month high. Investors re-priced political risk into US assets amid the reports.
George Saravelos of Deutsche Bank warned that the US depends on foreigners to finance its deficits. As stated, this exposure limits Washington’s bargaining power over Greenland.
He said Europe could use its dollar holdings to pressure the United States. “Europe owns Greenland; it also owns a lot of Treasuries,” he wrote.
Chris Weston of Pepperstone noted markets now price a higher political risk premium into US assets. “The market dynamic we are seeing increasing evidence of is that US assets are now carrying a much higher political risk premium,” and gold is cited as a safer alternative.
