Why India's rich are buying what the RBI is selling

An explainer on why the RBI and India's wealthiest families are making opposite bets on the same piece of paper, and what a new Stanford study says about who's right.

Why India's rich are buying what the RBI is selling

The Puzzle

Here's a little puzzle for you.

Over the past year, India's central bank has been quietly selling US government bonds. The RBI's holdings of US Treasurys fell from $232 billion in April 2025 to $181 billion in April 2026. That's the lowest in about six years. And it's been buying gold instead.

At the very same time, India's wealthiest business families have been doing the exact opposite. With the rupee sliding, wealth managers say the rush into dollar assets among HNIs and family offices has turned structural. People are front-loading their $250,000 LRS allowance at the start of the year instead of waiting. And one of the most popular things to buy with those dollars? US Treasurys.

So the RBI is selling. India's rich are buying. Same asset.

And this week, the pitch for buying just got a lot louder. Hotter-than-expected US inflation data pushed the 10-year Treasury yield up to about 5.3%, close to levels last seen in early 2002. The dollar hit an 18-month high before slipping. Meanwhile, the rupee is hovering around 95 to the dollar, not far from its record low of 96.96 hit in May.

For an HNI, the math seems almost too easy. Earn 5% in dollars. Pocket a few percent more every year as the rupee weakens. Sleep well, because what could be safer than lending to the US government?

But there's a catch.

A new paper from two finance researchers at Stanford's business school suggests that the thing which made Treasurys special, the thing you're really paying for when you buy them as a "safe haven", has been quietly leaking away. And the long-term Treasury, the one with the juicy 5.3% yield, is where the leak is worst.

The price of feeling safe

To understand this, we need to talk about something economists call the "convenience yield".

Sounds fancy. It isn't.

Imagine you have two fixed deposits. Both pay back for sure. But one of them you can break at any branch, any hour, in any country, and every lender on earth will happily accept it as security for a loan. The other one, you have to fill out three forms and wait a week.

You'd probably accept a slightly lower interest rate on the first one, right? That small bit of interest you're willing to give up, just for the comfort of holding something everyone trusts and anyone will take, is the convenience yield. It's basically the price of feeling safe.

For decades, US Treasurys have commanded the biggest convenience yield in the world. Central banks, pension funds and billionaires accepted lower returns on them than the risk alone would justify, because Treasurys were the ultimate emergency stash. When markets panicked, money ran into them.

Now, in a working paper published by the US National Bureau of Economic Research last month, Stanford's Arvind Krishnamurthy (a finance professor at Stanford's business school, and one of the researchers who wrote the foundational work on this idea) and Miguel Chumbo measured what's happened to this premium over the last five years.

And they found three things.

First, inside America, nothing much has changed. American investors still pay roughly the same premium for safe dollar assets as they did in 2019. And market prices suggest they expect that to continue for another decade.

But second, which asset Americans treat as the safest has changed. It's no longer the long-term Treasury. The premium on the 10-year Treasury has fallen a lot. Instead, the crown has moved to something called repo.

What's repo, you ask? Well, think of it as an overnight pawn shop for big institutions. A bank needs cash for one night, so it hands over some safe bonds as collateral and promises to buy them back tomorrow. It's super short, super secure, and apparently, it's now valued more highly than even short-term Treasury bills.

And third, outside America, the dollar's halo has slipped. Swap a euro safe asset into dollars, and compare it with a dollar safe asset. Historically, investors would pay extra to hold the dollar version. Over the last six months, the authors found that this extra has been near zero. The premium has also shrunk compared with the Japanese yen and the Danish krone, though it's still positive there.

So, to the world's reserve managers, a dollar bond is now roughly as "special" as a euro one. That's not how things have looked for most of the last 30 years.

Why the leak?

The authors' best guess is a little counterintuitive.

The US has been running big deficits and paying for them by issuing mountains of Treasurys. Treasurys held by the public went from about $16.7 trillion in 2019 to over $28 trillion in 2025. You'd think more Treasurys means more safe assets.

But here's the thing. When you flood the market with long-term government IOUs, and inflation and rates start swinging wildly as they did after 2022, those long-term bonds start to feel a bit less safe and a bit less easy to sell in a hurry. So investors quietly stop treating them as the ultimate emergency stash.

The authors do a rough back-of-the-envelope test. If every Treasury counted as a safe asset in 2019, America's pool of safe dollar assets was about 75% of its GDP. If only the short-term stuff, bills and repo, counts as truly safe today, that pool shrinks to about 20%. They admit this overstates things. But the direction is telling: by issuing more debt, America may have effectively ended up with fewer safe assets.

And you can see it in the plumbing. America's money market funds, the most risk-averse investors you'll find, have been using less Treasury collateral since 2023, and when they do use it, they now prefer bonds maturing in one to five years over longer ones.

Oh, and remember how Treasurys are supposed to rally when there's panic? In April 2025, after the US "Liberation Day" tariff announcement, money actually fled away from Treasurys. The authors point to that as a sign of how things have shifted.

You can already see it happening

Now, all of this might sound like academic hair-splitting. But if you look around, the leak is showing up in real life. Here are four moments from the last 18 months.

#1 The day the bunker cracked

That April 2025 episode wasn't a small wobble. Normally, when stocks crash, money runs into the dollar and Treasurys. This time, both fell together. The dollar index dropped 4.8% in April alone to a three-year low, even as long Treasury yields spiked. So where did the scared money go? Into gold, which hit record highs.

Think about what that means for a moment. The insurance policy failed to pay out on the one day you needed it most.

#2 The US government buying its own bonds

This one barely made Indian headlines. In August 2026, after the 30-year Treasury yield hit its highest level since 2007, the US Treasury made a surprise announcement. It would at least double its buybacks of long-dated bonds, from $2 billion to $4 billion per operation, for the 10-to-30-year segment.

Why does that matter? Well, the official reason was "liquidity support". In plain English, the government stepped in to be a buyer of its own long bonds, because it wanted them to be easier to sell. Which is exactly the part of the market the Stanford paper says has lost its shine. The world's safest asset shouldn't need a helping hand. And yet.

#3 Last week's auction: buyers are there, but at a price

On 7 October, the US sold $39 billion of new 10-year bonds. On the surface, it was a blockbuster. Foreign and institutional buyers took about 80%, and the notes cleared at 5.300%, the highest yield at a 10-year auction since November 2000.

So is the paper wrong? Not quite. Look at it again. Investors still showed up. But they showed up because the yield was above 5%. That's sort of the whole point. When a bond loses its "special" status, people don't stop buying it. They just stop giving it a discount. They want to be paid properly for holding it, like any other bond.

#4 Central banks quietly reshuffling the piggy bank

And it isn't just the RBI. According to the European Central Bank, gold made up 27% of global central bank reserves at the end of 2025, up from 20% a year earlier, while US Treasurys slipped to 22% from 25%. Countries including China, Poland, Turkey and India have been big gold buyers.

Now, to be fair, a lot of that is simply because gold prices shot up. A Federal Reserve economist pushed back in September, pointing out that foreign official holdings of Treasurys were still around $1 trillion larger than gold reserves in June 2026 once you strip out price effects and some legacy holdings. So Treasurys are hardly being dumped. But the direction of travel is pretty clear.

So what does this mean if you're holding dollars?

Now, we know what you'll say. "Hey, a higher yield is good for me. I'm getting paid more."

And that's true. But think about why you're getting paid more.

Part of the reason the 10-year Treasury yields 5.3% today is simply that interest rates and inflation are high. But part of it, if the Stanford paper is right, is that the market is no longer giving that bond the special "safe haven" discount it used to. In other words, the extra yield is partly compensation for the bond being a bit less of a bunker.

That matters because most Indian HNIs don't buy Treasurys just for the coupon. They buy them as insurance. Insurance against the rupee falling, against a crisis at home, against things going wrong. And insurance only works if it pays out when everything else is falling apart.

Here's a simple way to think about it. Say you move ₹2 crore into a long-dated Treasury fund. If there's a global scare and long Treasurys rally like they used to, great, your insurance pays out. But if there's a scare that's about America's debt pile, the kind we got a glimpse of in April 2025, long Treasurys could fall right when you need them. Your hedge stops hedging.

And this isn't hypothetical either. So far in 2026, the iShares 20+ Year Treasury Bond ETF (TLT) is down about 8.4%, while the 7-to-10-year version (IEF) is down about 4.5%. For an Indian investor, the rupee's slide of roughly 7.5% against the dollar over the past year has been the cushion. But in the long-bond fund's case, that cushion has been almost entirely used up just covering the bond losses. You took on currency risk, interest-rate risk and the paperwork of LRS, and ended up roughly where you started.

The bigger impact, though, might be closer to home. When US 10-year yields sit above 5%, global investors have less reason to take a chance on Indian stocks and bonds. That pulls money out of India, which weakens the rupee, which pushes more HNIs into dollars. It's a bit of a loop. And the RBI has been selling Treasurys partly to break it, by using those dollars to support the rupee.

The paper suggests a few quieter lessons hiding in plain sight.

One, length matters. Inside the US, the market's love has shifted to the short end: bills, repo and money market style instruments. A "US Treasury" product with a 0 to 1 year maturity and one holding 20-year bonds both say "Treasury" on the label, but the paper suggests they're no longer the same kind of safe.

Two, "dollar" isn't the only safe currency anymore. If global reserve managers now see euro safe assets as roughly as special as dollar ones, then putting your entire foreign stash in one currency is a bigger bet than it looks. That's sort of what the RBI has been doing, spreading out from Treasurys into gold.

And three, your two reasons for buying dollars can pull in different directions. The rupee falling is a reason to own dollars. The Treasury losing its shine is a reason to think hard about where you park them.

The other side

To be fair, none of this means the dollar is finished.

The authors are careful. They call their explanation a hypothesis that the data is consistent with, not something it proves. The paper itself hasn't been peer reviewed yet. And within America, the demand for safe dollar assets is still as strong as ever.

The RBI's selling also has more mundane reasons. It's been using dollars to defend the rupee, and selling Treasurys is one way to raise them. And several rich countries, including Japan and the UK, have kept buying US Treasurys through the same period.

And for an Indian family, the rupee's long slide is a very real, very old problem. Owning some dollars to hedge that still makes plenty of sense.

The question isn't really "dollars or not?". It's whether the long-term Treasury is still the perfect bunker it was when your wealth manager first learnt about it. And on that, the people who measure this for a living seem a lot less sure than the sales pitch.

Will the dollar win back its halo once America sorts out its finances? Or is this the slow start of a world with more than one safe haven? That's something only time will tell.

For our readers..

If this story helped you understand why the world's safest asset might be a little less safe, share it with your friends, family, or even that cousin who just moved his LRS money into a 20-year Treasury ETF.

Disclaimer: This article is for educational purposes only and is not investment advice. Please speak to a registered advisor before making investment decisions.

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