Who is buying US Treasury bonds? What are the reasons behind it?
2026-08-21 21:59:01
To fill its massive and persistent fiscal deficit, the U.S. Treasury has been borrowing heavily in the global bond market. Currently, its outstanding Treasury bonds (including those held by the Federal Reserve) exceed $30 trillion. From July to December 2026, the U.S. Treasury projects net borrowing exceeding $10 billion per trading day, a significant portion of which will originate from overseas. This article explores who is funding the U.S. Treasury's massive borrowing. 
Why is the identity of a bondholder so crucial? The United States has long suffered from fiscal and current account deficits, and foreign investors have consistently been the largest single source of funds to fill these deficits. With the continued expansion of US government debt, net foreign debt has reached approximately 70% of GDP. Whether foreign investors are willing to continue buying and holding US Treasury bonds directly impacts US financing costs, the dollar exchange rate, and even overall financial stability. The "Liberation Day" tariffs of April 2025 serve as a warning: a risk-averse shock did not trigger a traditional influx of funds into US Treasury bonds; instead, it led to a weakening dollar and rising long-term interest rates. This means that it is unrealistic to assume that foreign funds will continue to flow into the US Treasury market. What percentage of US Treasury bonds are currently held by foreign entities? As of mid-2025, by market capitalization, foreign official institutions and private investors collectively hold approximately 40% of outstanding US Treasury bonds; this figure peaked at over 50% around the time of the 2007-2009 global financial crisis. This statistical figure includes comprehensive calculations of US Treasury bonds held by Cayman Islands hedge funds—a type of capital that is significantly underestimated in official statistics. What is the biggest change in the structure of US Treasury bondholders? During the global financial crisis, foreign official investors (mainly central banks of various countries that included government bonds in their foreign exchange reserves) were the main holders of US Treasury bonds, with China and Japan playing particularly important roles. Since then, the proportion of US Treasury bonds held by foreign official institutions has continued to decline, with foreign private investors taking their place as the larger holder group. As of mid-2025, after adjusting for Cayman Islands holdings, foreign private investors held approximately $7 trillion in US Treasury bonds, while foreign official institutions held $3.9 trillion. Why are central banks reducing their holdings of US Treasury bonds? The decline in the proportion of official holdings is mainly driven by three factors: 1. Slower growth in foreign exchange reserves. Over the past decade, the growth rate of global foreign exchange reserves relative to global GDP has been far lower than at the beginning of the 21st century; at that time, central banks in emerging markets and oil-exporting countries were rapidly accumulating reserves. At the same time, the total stock of US Treasury bonds has increased significantly. In addition, the proportion of dollar assets in foreign exchange reserves has also been gradually declining. 2. Increased holdings of Treasury bonds by the Federal Reserve. After the financial crisis, the Federal Reserve expanded its balance sheet, diverting the supply of Treasury bonds available for other investors to purchase. 3. The effect of dollar appreciation. When the US dollar strengthens relative to other reserve currencies, the proportion of dollar assets in central bank reserve portfolios passively increases. To avoid a significant deviation of asset allocation from targets, central banks will correspondingly reduce their purchases of US Treasury bonds; data clearly and consistently confirms this rebalancing behavior. Geopolitical divergence further amplifies this trend: countries with less geopolitical ties to the US, or those situated in an increasingly fragmented global economic environment, generally hold a lower proportion of US Treasury bonds. Which countries have reduced their holdings? China and Japan are the two main examples. Between 2011 and 2024, even with a $15.6 trillion increase in the total market value of US Treasury bonds, China's reported US Treasury bond holdings still decreased by approximately $400 billion. This reduction is merely a change in the accounting location—some of China's holdings are now registered through custodian institutions such as the European Clearing Bank in Belgium—not a decrease in actual risk exposure, but the proportion of US Treasury bond holdings still shows a significant decline. During the same period, the absolute size of Japan's US Treasury bond holdings hardly increased, stemming from a slowdown in its own reserve accumulation, resulting in a decrease in its US Treasury bond holdings from 10% to approximately 4%. Due to US sanctions, Russia's holdings of US Treasury bonds have shrunk significantly since 2018. India is a rare exception among official holders: its foreign exchange reserves have tripled, while its US Treasury bond holdings have increased more than fivefold. Why is there increased demand for US Treasury bonds from the overseas private sector? The demand patterns of the private sector differ from those of the official sector in several ways: a stronger dollar boosts the private sector's willingness to buy bonds, the opposite of the behavior of official institutions; declining domestic investor preferences lead international bond investors to allocate a larger proportion of their assets to securities in other countries, driving up private demand; private demand rises during periods of market risk aversion, consistent with the traditional safe-haven asset characteristics of US Treasury bonds, as exemplified by the behavior of private investors during the global financial crisis. However, in some recent events, such as the US Treasury market turmoil in March 2020 and the "Liberation Day" tariff announcement, while global risk aversion intensified, overseas investors were selling off US Treasury bonds. This indicates that the safe-haven attribute of US Treasury bonds is not as robust as it was twenty years ago. Can private demand completely replace official demand? No, it cannot completely replace it. Official holdings are mostly central bank reserves, representing stable long-term positions. There are significant differences within the private investor group: pension funds and insurance institutions have investment styles similar to official institutions, with relatively stable holdings; however, the influence of highly leveraged hedge funds registered in the Cayman Islands has increased significantly. These funds are mostly funded by US domestic investors, who hold US Treasury bonds primarily for basis trading and other arbitrage strategies. They can quickly liquidate their positions when the market comes under pressure, as evidenced by the market volatility in March 2020. More and more private funds are flowing through financial centers, including the UK, Ireland, Luxembourg, and Belgium, in addition to the Cayman Islands. After funds transit through these regions, the true ultimate holders become blurred, making it difficult to predict their reactions in the event of a crisis. What risks exist in the future? The US current and anticipated fiscal deficits remain high, and the global supply of US Treasury bonds will continue to expand rapidly. To avoid further increases in long-term interest rates, demand for US Treasury bonds needs to expand simultaneously. However, multiple factors indicate that the resilience of overseas demand is worrying: 1. Structural weakening of official demand. Unless there is another wave of large-scale reserve accumulation globally, or a significant depreciation of the US dollar, even if the US continues to issue more Treasury bonds, central banks around the world are unlikely to significantly increase their holdings of US Treasury bonds. 2. Increased volatility among marginal buyers. The increased proportion of private investors in overseas financing makes US financing costs more susceptible to changes in global risk appetite and geopolitical situations; unlike in past economic downturns, it can no longer stably suppress US Treasury yields. 3. Lack of transparency regarding ultimate holders. The increased proportion of funds flowing through financial intermediaries makes it difficult to identify the actual owners of US Treasury bonds and to predict their behavior during crises. 4. Rollover risk. A large amount of pre-pandemic Treasury bonds will mature in the coming years; the higher the proportion of overseas holdings, the more susceptible the refinancing process will be to changes in the intentions of overseas investors. 5. Rising debt interest costs. Higher interest rates coupled with an expanding net external debt mean the US will need to pay more interest to overseas creditors in the future, a change unrelated to overseas investor sentiment. Does this mean foreign investors are "selling off" US Treasury bonds? Not at all. Relevant research evidence suggests that overseas investors are only undergoing a structural, gradual asset rebalancing, not a large-scale flight from US Treasury bonds. Total overseas holdings denominated in US dollars are still growing, and the increase in private demand has already offset the decline in official holdings in absolute terms. The real concern isn't an immediate large-scale sell-off, but rather the changing structure of the foreign investor group: the proportion of stable official reserves is declining, replaced by a larger, more diverse, and more sensitive private investor group. What policy implications do these findings have? The stability of US Treasury financing increasingly depends on the interaction between US fiscal policy, the intensity and frequency of geopolitical shocks, and global asset allocation preferences. Due to structural factors, the traditional safe-haven support from official reserves has peaked; the now larger proportion of foreign private investors is more susceptible to risk sentiment shocks and geopolitical frictions, and most of the major holders of US Treasury bonds are its allies. Furthermore, the increased influence of highly leveraged investors means that a sharp shift in sentiment could trigger a large-scale sell-off, causing systemic pressure—the market turmoil of March 2020 serves as a cautionary tale. In short, US financing costs and financial stability are more vulnerable to global sentiment fluctuations than in the past, highlighting the importance of a sound fiscal foundation as a buffer against external volatility.
Why is the identity of a bondholder so crucial? The United States has long suffered from fiscal and current account deficits, and foreign investors have consistently been the largest single source of funds to fill these deficits. With the continued expansion of US government debt, net foreign debt has reached approximately 70% of GDP. Whether foreign investors are willing to continue buying and holding US Treasury bonds directly impacts US financing costs, the dollar exchange rate, and even overall financial stability. The "Liberation Day" tariffs of April 2025 serve as a warning: a risk-averse shock did not trigger a traditional influx of funds into US Treasury bonds; instead, it led to a weakening dollar and rising long-term interest rates. This means that it is unrealistic to assume that foreign funds will continue to flow into the US Treasury market. What percentage of US Treasury bonds are currently held by foreign entities? As of mid-2025, by market capitalization, foreign official institutions and private investors collectively hold approximately 40% of outstanding US Treasury bonds; this figure peaked at over 50% around the time of the 2007-2009 global financial crisis. This statistical figure includes comprehensive calculations of US Treasury bonds held by Cayman Islands hedge funds—a type of capital that is significantly underestimated in official statistics. What is the biggest change in the structure of US Treasury bondholders? During the global financial crisis, foreign official investors (mainly central banks of various countries that included government bonds in their foreign exchange reserves) were the main holders of US Treasury bonds, with China and Japan playing particularly important roles. Since then, the proportion of US Treasury bonds held by foreign official institutions has continued to decline, with foreign private investors taking their place as the larger holder group. As of mid-2025, after adjusting for Cayman Islands holdings, foreign private investors held approximately $7 trillion in US Treasury bonds, while foreign official institutions held $3.9 trillion. Why are central banks reducing their holdings of US Treasury bonds? The decline in the proportion of official holdings is mainly driven by three factors: 1. Slower growth in foreign exchange reserves. Over the past decade, the growth rate of global foreign exchange reserves relative to global GDP has been far lower than at the beginning of the 21st century; at that time, central banks in emerging markets and oil-exporting countries were rapidly accumulating reserves. At the same time, the total stock of US Treasury bonds has increased significantly. In addition, the proportion of dollar assets in foreign exchange reserves has also been gradually declining. 2. Increased holdings of Treasury bonds by the Federal Reserve. After the financial crisis, the Federal Reserve expanded its balance sheet, diverting the supply of Treasury bonds available for other investors to purchase. 3. The effect of dollar appreciation. When the US dollar strengthens relative to other reserve currencies, the proportion of dollar assets in central bank reserve portfolios passively increases. To avoid a significant deviation of asset allocation from targets, central banks will correspondingly reduce their purchases of US Treasury bonds; data clearly and consistently confirms this rebalancing behavior. Geopolitical divergence further amplifies this trend: countries with less geopolitical ties to the US, or those situated in an increasingly fragmented global economic environment, generally hold a lower proportion of US Treasury bonds. Which countries have reduced their holdings? China and Japan are the two main examples. Between 2011 and 2024, even with a $15.6 trillion increase in the total market value of US Treasury bonds, China's reported US Treasury bond holdings still decreased by approximately $400 billion. This reduction is merely a change in the accounting location—some of China's holdings are now registered through custodian institutions such as the European Clearing Bank in Belgium—not a decrease in actual risk exposure, but the proportion of US Treasury bond holdings still shows a significant decline. During the same period, the absolute size of Japan's US Treasury bond holdings hardly increased, stemming from a slowdown in its own reserve accumulation, resulting in a decrease in its US Treasury bond holdings from 10% to approximately 4%. Due to US sanctions, Russia's holdings of US Treasury bonds have shrunk significantly since 2018. India is a rare exception among official holders: its foreign exchange reserves have tripled, while its US Treasury bond holdings have increased more than fivefold. Why is there increased demand for US Treasury bonds from the overseas private sector? The demand patterns of the private sector differ from those of the official sector in several ways: a stronger dollar boosts the private sector's willingness to buy bonds, the opposite of the behavior of official institutions; declining domestic investor preferences lead international bond investors to allocate a larger proportion of their assets to securities in other countries, driving up private demand; private demand rises during periods of market risk aversion, consistent with the traditional safe-haven asset characteristics of US Treasury bonds, as exemplified by the behavior of private investors during the global financial crisis. However, in some recent events, such as the US Treasury market turmoil in March 2020 and the "Liberation Day" tariff announcement, while global risk aversion intensified, overseas investors were selling off US Treasury bonds. This indicates that the safe-haven attribute of US Treasury bonds is not as robust as it was twenty years ago. Can private demand completely replace official demand? No, it cannot completely replace it. Official holdings are mostly central bank reserves, representing stable long-term positions. There are significant differences within the private investor group: pension funds and insurance institutions have investment styles similar to official institutions, with relatively stable holdings; however, the influence of highly leveraged hedge funds registered in the Cayman Islands has increased significantly. These funds are mostly funded by US domestic investors, who hold US Treasury bonds primarily for basis trading and other arbitrage strategies. They can quickly liquidate their positions when the market comes under pressure, as evidenced by the market volatility in March 2020. More and more private funds are flowing through financial centers, including the UK, Ireland, Luxembourg, and Belgium, in addition to the Cayman Islands. After funds transit through these regions, the true ultimate holders become blurred, making it difficult to predict their reactions in the event of a crisis. What risks exist in the future? The US current and anticipated fiscal deficits remain high, and the global supply of US Treasury bonds will continue to expand rapidly. To avoid further increases in long-term interest rates, demand for US Treasury bonds needs to expand simultaneously. However, multiple factors indicate that the resilience of overseas demand is worrying: 1. Structural weakening of official demand. Unless there is another wave of large-scale reserve accumulation globally, or a significant depreciation of the US dollar, even if the US continues to issue more Treasury bonds, central banks around the world are unlikely to significantly increase their holdings of US Treasury bonds. 2. Increased volatility among marginal buyers. The increased proportion of private investors in overseas financing makes US financing costs more susceptible to changes in global risk appetite and geopolitical situations; unlike in past economic downturns, it can no longer stably suppress US Treasury yields. 3. Lack of transparency regarding ultimate holders. The increased proportion of funds flowing through financial intermediaries makes it difficult to identify the actual owners of US Treasury bonds and to predict their behavior during crises. 4. Rollover risk. A large amount of pre-pandemic Treasury bonds will mature in the coming years; the higher the proportion of overseas holdings, the more susceptible the refinancing process will be to changes in the intentions of overseas investors. 5. Rising debt interest costs. Higher interest rates coupled with an expanding net external debt mean the US will need to pay more interest to overseas creditors in the future, a change unrelated to overseas investor sentiment. Does this mean foreign investors are "selling off" US Treasury bonds? Not at all. Relevant research evidence suggests that overseas investors are only undergoing a structural, gradual asset rebalancing, not a large-scale flight from US Treasury bonds. Total overseas holdings denominated in US dollars are still growing, and the increase in private demand has already offset the decline in official holdings in absolute terms. The real concern isn't an immediate large-scale sell-off, but rather the changing structure of the foreign investor group: the proportion of stable official reserves is declining, replaced by a larger, more diverse, and more sensitive private investor group. What policy implications do these findings have? The stability of US Treasury financing increasingly depends on the interaction between US fiscal policy, the intensity and frequency of geopolitical shocks, and global asset allocation preferences. Due to structural factors, the traditional safe-haven support from official reserves has peaked; the now larger proportion of foreign private investors is more susceptible to risk sentiment shocks and geopolitical frictions, and most of the major holders of US Treasury bonds are its allies. Furthermore, the increased influence of highly leveraged investors means that a sharp shift in sentiment could trigger a large-scale sell-off, causing systemic pressure—the market turmoil of March 2020 serves as a cautionary tale. In short, US financing costs and financial stability are more vulnerable to global sentiment fluctuations than in the past, highlighting the importance of a sound fiscal foundation as a buffer against external volatility.
- Risk Warning and Disclaimer
- The market involves risk, and trading may not be suitable for all investors. This article is for reference only and does not constitute personal investment advice, nor does it take into account certain users’ specific investment objectives, financial situation, or other needs. Any investment decisions made based on this information are at your own risk.
