How valuable is the exorbitant privilege? The ratings downgrade of US sovereign debt has not erased the dollar’s special position – as the numeraire of international transactions, the currency of choice for storing trade surpluses and the instinctive home for money in troubled times. But it is a forceful reminder that the special status could some day be lost.

The main beneficiaries of the privilege are US government bonds and the dollar. The former’s gain can be estimated with a global return forecasting factor (GFF), as set out in a paper by Rebecca Hellerstein of the New York Federal Reserve. She used clever statistical techniques to isolate the effect of global risk appetite on the gap between short- and long-dated US Treasury yields. The result: at times of cross-border investor confusion or stress – including all of the last year – the GFF has shrunk this gap by 25-50 basis points. In other words, if investors with worries and countries with trade surpluses stopped considering US Treasuries to be safe, yields on 10-year would be as much as half a percentage point higher.

Ironically and irrationally, Treasuries are still considered a haven when the US government troubles the waters. The 10-year yield fell by as much as 25 basis points on the first trading day after Standard & Poor’s action. Still, the GFF is worth remembering, because investors have good reasons for abandoning that preference.