Foreign governments and central banks are selling US Treasury securities at a pace that has not been seen in decades. The decline is not small. It is a structural shift, and it changes who holds the world’s most important financial instrument.
Since 2012, the amount of Treasury securities outstanding has about tripled. That growth has made the market bigger, but it has also made the share of foreign official holdings shrink dramatically. The share of “foreign official” holdings of marketable Treasury securities has collapsed from 34% in 2012 and over 38% at the 2007-2009 peak to 12.8% in July, the lowest since 1993.
Who Is Selling
The sellers are spread across the globe, but the biggest moves come from Japan, China and Hong Kong, and Canada. Japan shed $13 billion in July, reducing holdings by $135 billion from February through July. Mainland China and Hong Kong combined shed $13 billion in July, bringing the 12-month reduction to $67 billion and the total reduction since 2015 to $587 billion.
Their share dropped to 3.0% of marketable Treasury securities outstanding. Canada’s holdings plunged $33 billion in July to $426 billion, reversing the prior month’s spike. France’s holdings fell $42 billion in July to $348 billion after hitting record levels. Taiwan’s holdings fell $6 billion to $296 billion.
Norway is the outlier, rising $4 billion to $207 billion after four months of declines. Its sovereign wealth fund holds $2.3 trillion in assets under management.
The Numbers Behind the Drop
Total foreign holders — official and private — shed $50 billion in July, bringing holdings to $9.25 trillion. Long-term Treasury notes and bonds accounted for $7.78 trillion, or about 84%, of total foreign holdings; the rest were short-term Treasury bills.
Private foreign holdings include US hedge funds domiciled in financial centers like the Cayman Islands, which hold an estimated $2 trillion in the Treasury basis trade. They also include US companies’ Irish and other foreign entities holding foreign profits.
The share of marketable Treasury securities outstanding declined to a near-record low of 31.9% in July. That figure roughly matches three months in 2020 when the US government issued $3 trillion in new debt and the Fed bought $3 trillion.
Why Japan Is Selling
Japan’s sales are profitable in yen terms. The country bought the securities with a much stronger yen; losses in dollar terms were minimal on securities close to maturity. The sales came ahead of currency-market interventions, where Japan sold dollars and bought yen to prop up the yen.
The math is simple. A Japanese buyer paid yen for Treasuries when the yen was strong. Now the yen is weaker, and selling those dollars back into yen produces a gain. The US buyer loses nothing, because the bonds were close to maturity anyway.
Who Holds the Rest
Seven largest financial centers combined held $3.28 trillion, accounting for about 11% of all marketable Treasury securities outstanding and 35% of all foreign holdings. In order of holdings:
| Rank | Center | Holdings |
|---|---|---|
| 1 | UK | $1.0 trillion |
| 2 | Belgium | $471 billion |
| 3 | Cayman Islands | $460 billion |
| 4 | Luxembourg | $442 billion |
| 5 | Ireland | $350 billion |
| 6 | Switzerland | $285 billion |
| 7 | Singapore | $278 billion |
These centers are not countries. They are places where money moves without much transparency.
What This Means for the US
The shift leaves the US less reliant on foreign governments but more beholden to shadowy offshore centers and their hedge-fund clients. The US government now has fewer foreign officials watching its borrowing. It also has fewer foreign officials to call when the economy needs help. The buyers who remain are private investors, and they answer to their own clients, not to any national interest.
That is the core of the story. The US has traded a dependence on foreign governments for a dependence on private finance, and the private sector has its own incentives.
The Long-Term Picture
Inflation since 2012 was 48%. The market value of foreign central bank and government holdings of US Treasury securities declined this year, dropping to $3.77 trillion in July at market value, roughly where they’d been in 2012.
The Dallas Fed data via the St. Louis Fed shows the scale of the change. The share of foreign official holdings has shrunk from a high of over 38% to 12.8% in July, the lowest since 1993.
The private share has grown to fill the gap. But private buyers are different from official buyers. They hold for profit, not for stability. They sell when the price falls, and they buy when the price rises.
That is a risk for the US. Official buyers smooth volatility. Private buyers amplify it.
The Takeaway
The US is still the world’s dominant borrower. The Treasury market remains the deepest and most liquid market in history. But the composition of that market has changed permanently.
Foreign central banks and governments hold a smaller share of US debt than they did a decade ago. Private investors hold a larger share. The hedge funds in the Cayman Islands and the entities in Ireland are not accountable to anyone except their own bottom line.
That is a shift with real consequences. It means the US can borrow more easily in the short term, because private buyers are willing to hold more debt. It also means the US has less leverage over other countries, because fewer official holders are watching its balance sheet.
Where the paper stands
The paper backs lower costs for starting and running a small business and is against government funds that favor the biggest players in the Treasury market. The shift described here is a matter of who holds the world’s most important financial instrument, and it matters to the middle class and small business because the players left standing are private investors whose incentives differ sharply from those of foreign governments.
The paper’s position is that the middle class and the small business carry the economy and get the least say in it. When the Treasury market is dominated by private finance rather than foreign governments, the US government gains easy borrowing but loses the influence that comes from having other countries watching its balance sheet.
The paper would want more transparency in the financial centers that now hold so much US debt, including the Cayman Islands, Luxembourg, Ireland and the others listed above. These are not countries, and they do not answer to voters or to national interests the way foreign governments do.
Source material: “US Treasuries Have Become Unappetizing for Foreign Central Banks and Governments,” wolfstreet.com.
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