Foreign Countries Aren’t Buying Treasuries Like They Used To. How That Could Be Trouble for Bessent.
- Foreign ownership of marketable U.S. Treasury bonds has fallen to about 40%, down from a peak of 50% before the 2008 Global Financial Crisis.
- Private investors now hold nearly twice as much U.S. government debt as official creditors, which could trigger higher sensitivity to shocks.
- China reduced its official hoard of U.S. government debt by 13% during the 12 months leading up to June.
Foreign holders of U.S. government debt ain’t what they used to be. That might concern Treasury Secretary Scott Bessent as he looks to rein in rising yields with buybacks.
Foreigners own about 40% of the $30 trillion or so in “marketable” Treasury bonds, says Gian Maria Milesi-Ferretti, a senior fellow at the Brookings Institution. That’s down from a peak of 50% before the 2008 Global Financial Crisis. Back then, though, central banks led by China and Japan dominated the market.
These days private investors hold nearly twice as much debt as official creditors, potentially spelling more volatility. “This shift triggers higher investor sensitivity to a variety of shocks and global conditions,” Milesi-Ferretti comments.
The trend held over the past year. China shaved another 13% from its official hoard in the 12 months to June. Japan, now Washington’s biggest foreign creditor, more-or-less stood pat. The four European financial centers—United Kingdom, Belgium, Luxembourg, and Ireland—added a net $210 billion.
That reflects demand from private investors around the world more than European savers, Milesi-Ferretti says. Washington’s brew of 6%-of-gross-domestic-product budget deficits and aggressive foreign policy is making some of those buyers think twice, says Mark Dowding, chief investment officer for fixed income at RBC BlueBay Asset Management. “Lots of investor groups feel overexposed to the dollar,” he says. “We’ve been voicing to the Treasury that they need to rely more on domestic savings.”
Some evidence supports this hypothesis. The euro has risen more than 2% against the dollar over the past month, gold Any foreign exit from Treasuries will still resemble a slow leak more than a stampede. Lack of alternatives is one reason. Yields on 30-year bonds in the U.K., France and Japan have all risen faster than the U.S. this year, notes Kriti Gupta, global investment strategist for J.P. Morgan Private Bank. Her end-of-year target for U.S. long bonds is 5.1%, a hair below the current level. “I don’t see foreign holdings of Treasuries as either a surprise or a risk,” she says.
Dowding is keen on Japanese paper, whose returns beat Treasuries factoring in currency hedges, he says. But Japanese markets lack the liquidity to rival the U.S. as a long-term funding benchmark, argues Ed Al-Hussainy, global rates strategist at Columbia Threadneedle Investments. “Liability managers have been using Treasuries as a long-duration asset for decades,” he says. “Shifting that is a very slow-moving train.”
Unlike many colleagues, Al-Hussainy also sees Bessent’s “Treasury twist” as a potent factor that could relieve stress on yields. “An investor probably shouldn’t fight the Treasury Department too aggressively,” he says. “U.S. Treasury taking a bit of risk out of the market is an important signal.”
All the same, President Donald Trump’s administration is tempting bond market fate by using U.S. economic strength to pressure traditional allies while expecting those same allies to pour trillions into propping up U.S. debt.
“The U.S. has attempted to shift the balance of trade relationships but assumed unchanged capital-flow relationships,” says Andrew Keirle, global portfolio manager for emerging-market fixed income at T. Rowe Price.
If Bessent does trigger some of those more sensitive private foreign investors to sell, he will be hard put to find domestic substitutes, given a healthy stock market and mushrooming private bond issuance from artificial intelligence hyperscalers,” BlueBay’s Dowding predicts. “When I speak to U.S. equity brokers, there is absolutely no interest in the U.S. Treasury,” he says.