After the bursting of the dot.com bubble, inflows of private capital diminished substantially, but they were replaced by official flows, coming from countries with limited exchange rate flexibility. The less-than-complete substitution led to a depreciation of the US dollar and of the currencies pegged to it.
The accumulation of official reserves accelerated as China and other emerging countries kept pegging their exchange rates to the dollar: of the total increase in foreign exchange reserves between 1998 and 2007 almost 70 percent is to be ascribed to emerging Asian and oil/exporting economies. The large volume of investment in US Treasury securities by foreign official investors contributed to drive their yields lower.