Appeal of Dollar, Treasurys Can't Last: Mobius

Despite continued woes in the U.S. economy, the greenback has seen an unexpected surge against currencies around the world.

As investors become ever more risk averse, emerging markets are bearing the brunt of a flight to safety.

But Mark Mobius, executive chairman of Templeton Asset Management, sees a reversal around the corner.

"As everyone is rushing into US Treasurys, they need U.S. dollars to do that and have therefore sold everything in sight," Mobius told CNBC.

"This is why emerging markets have gone down, why commodities have gone down. as everyone is moving into dollars."

But Mobius said that "as US Treasury rates go down to 1 percent or below you will see the attraction of US Treasurys waning."

Mobius also believes that emerging markets have learnt a bitter lesson since the Asian Crisis of 1997-1998.

"One big lesson was 'don't borrow in a currency you are not earning in'," he said.

Emerging markets have also curtailed lending and built up foreign reserves, which they can call upon in almost "a reversal of 1997 where the emerging markets were debtors, they are now the creditors," he added.

But the surge in the greenback has taken a lot of investors by surprise, Mobius said.

Having learned from the Asian crisis, companies hedged currencies and "ironically these hedges have really worked against them in some cases …as they are over-hedged and it went against them as they were expecting the dollar to go weaker and it went the other way," he said.

The yield on two-year US Treasury bonds hit a record low of 1.06 percent recently, responding both to the fresh flight to safety and the prospect of lower interest rates. Euro-zone government bond futures hit their highest level since March 2006.

© 2008 CNBC.com