Who’s buying U.S. Treasury debt, and why?

Gian Maria Milesi-Ferretti

To finance large and persistent budget deficits, the U.S. Treasury borrows heavily on global bond markets. Current marketable debt outstanding (including holdings of the Federal Reserve) comes to more than $30 trillion. From July through December 2026, the Treasury expects to borrow more than $10 billion net every business day—a substantial slice of that from foreigners. This piece examines from whom the Treasury is doing all this borrowing. It draws from my paper with Anusha Chari of the University of North Carolina at Chapel Hill, “The United States and its creditors: Assessing foreign demand for US assets.”

Why does it matter who holds U.S. Treasury securities?

The U.S. runs persistent budget and current account deficits, and foreign investors have been the largest single source of financing for those deficits. As U.S. government debt keeps growing and net external liabilities reach roughly 70% of GDP, the willingness of foreign investors to keep buying and holding Treasuries has direct consequences for U.S. borrowing costs, the dollar, and financial stability more broadly. The April 2025 “Liberation Day” tariff episode—when a risk-off shock triggered a weaker dollar and rising long-term rates instead of the traditional flight to safety—is a reminder that this relationship can’t be taken for granted.

How much of the Treasury market is foreign owned today?

As of mid-2025, foreign official and private investors together held some 40% of outstanding U.S. Treasury securities at market value, down from a peak above 50% around the 2007–09 Global Financial Crisis (GFC). These figures include a comprehensive measure of Treasuries held by Cayman Islands-based hedge funds—which are substantially undercounted in official statistics.

What’s the biggest change in who holds Treasuries?

Foreign official investors—mainly central banks holding Treasuries as part of their foreign exchange reserves—dominated foreign ownership at the time of the GFC, with China and Japan playing a particularly sizable role. Since then, the share of Treasuries held by foreign official investors has declined steadily, while those of foreign private investors have taken over as the larger group. By mid-2025, foreign private holdings (including the adjustment for Cayman holdings) stood at about $7 trillion, compared with $3.9 trillion held by foreign official institutions.

Why have foreign central banks pulled back?

Three factors explain most of the decline in the share of official holdings:

1. Slower reserve accumulation. Global foreign exchange reserves have grown much more slowly relative to world GDP over the past decade than during the 2000s, when emerging market and oil-exporting central banks were rapidly building reserve stockpiles. At the same time, Treasury securities outstanding have grown rapidly. Furthermore, the dollar share of foreign exchange reserves has been gradually declining.
2. The Federal Reserve’s Treasury holdings. The Fed’s balance sheet expansion since the financial crisis has reduced the pool of Treasuries available for other investors to buy.
3. Dollar appreciation. When the dollar strengthens against other reserve currencies, the dollar share of a central bank’s reserve portfolio rises automatically. To keep their currency allocations from drifting too far from target, central banks respond by buying relatively fewer Treasuries—a rebalancing pattern the data show clearly and consistently.

Geopolitical fragmentation has reinforced this trend: countries that are more geopolitically distant from the United States, or that operate in a more fragmented global economy generally, hold smaller shares of Treasuries.

Which countries account for the pullback?

China and Japan are the two most important. China’s reported Treasury holdings fell by about $400 billion between 2011 and 2024, even as the market value of total Treasury debt outstanding grew by $15.6 trillion. While some of this reflects Chinese holdings that are now routed through custodians like Euroclear in Belgium, rather than a true decline in exposure, the decline in the share of Treasuries is still very substantial. Japan’s holdings barely grew in absolute terms over the same period, as its own reserve accumulation slowed, and therefore its Treasury share declined from 10% to around 4%. Russia’s Treasury holdings dropped sharply after 2018 following U.S. sanctions. India is a rare exception among official holders, with its Treasury holdings rising more than fivefold as its reserves tripled.

What’s driving the rise in private foreign demand?

Private demand behaves differently from official demand in several ways:

• It responds positively to dollar appreciation, the opposite of the official sector pattern.
• It rises with declining home bias, as international bond investors allocate a rising share of their holdings to securities issued by other economies.
• It has risen during “risk-off” episodes, consistent with Treasuries’ traditional safe-haven appeal. This reflects, in particular, the behavior of private demand around the time of the GFC. However, some recent episodes, such as the March 2020 Treasury market turmoil and the immediate aftermath of the Liberation Day tariff announcement, saw foreign sales of Treasuries as global risk aversion was rising. This suggests that the safe haven characteristics of Treasury securities may not be as reliable as they were two decades ago.

Is private demand a reliable substitute for official demand?

Not entirely. Official holdings—largely central bank reserves—tend to be stable buy-and-hold positions. Private holdings are more heterogeneous: Pension funds and insurers behave more like stable, official-style investors, but highly-leveraged players such as hedge funds domiciled in the Cayman Islands have taken on a much more important role. These are funds whose shares are mostly held by U.S. investors, hold Treasuries to facilitate basis trades and other arbitrage strategies, and can unwind their positions rapidly under stress (as seen in March 2020). A growing share of private holdings also flows through financial centers—the U.K, Ireland, Luxembourg, and Belgium, in addition to the Cayman Islands—which obscures who the ultimate investors actually are and complicates any assessment of how they might react to a shock.

What are the risks going forward?

With large current and projected U.S. fiscal deficits, global supply of Treasury securities will continue to rise rapidly. In turn, this will require commensurate increases in Treasury demand to keep long-term interest rates from rising further. A number of factors point to concerns related to the resilience of foreign demand.

• Structural moderation in official demand. Absent a new wave of global reserve accumulation or a significant dollar depreciation, foreign central banks are unlikely to meaningfully increase their Treasury purchases, even as U.S. debt issuance continues to grow.
• A more volatile marginal buyer. As private investors account for a growing share of foreign financing, U.S. borrowing costs may become more sensitive to shifts in global risk appetite and geopolitical developments—and less reliably counter-cyclical than in the past, when global downturns reliably pushed U.S. yields down.
• Opacity of ultimate holders. The rising role of financial center intermediaries makes it harder to know who actually owns U.S. debt and how those holders might behave in a crisis.
• Rollover risk. A large share of pre-pandemic debt is maturing in the next few years; the more of that debt is held abroad and needs refinancing, the greater the exposure to shifts in foreign appetite.
• Rising debt-service costs. Higher interest rates combined with a growing net external debt position mean larger income transfers to foreign creditors going forward, independent of any change in foreign sentiment.

Does this mean foreign investors are “dumping” Treasuries?

No. The evidence in our paper points to a gradual, structurally driven rebalancing rather than any wholesale flight from Treasuries. Total foreign holdings in dollar terms have grown, and private demand has more than offset the decline in official demand in absolute terms. The concern is less about an imminent selloff and more about the changing character of the foreign investor base: a smaller, more stable official anchor and a larger, more heterogeneous, and more market-sensitive private base.

What are the policy implications of all this?

The stability of U.S. Treasury financing increasingly depends on the interplay between U.S. fiscal policy, the pace and severity of geopolitical shocks, and shifting global portfolio preferences. The traditional safe-haven anchor of official reserve demand has leveled off for structural reasons, and the now-larger foreign private investor base is potentially sensitive to risk sentiment shocks and geopolitical tensions, particularly in an environment of increased strains between the U.S. and its allies, which are the largest foreign holders of Treasury securities. Furthermore, the growing role played by highly leveraged investors implies that sharp shifts in sentiment could trigger rapid sales and systemic stress (akin to what we witnessed in March 2020). In sum, U.S. borrowing costs and financial stability are more exposed than in the past to swings in global sentiment—underscoring the importance of sound fiscal fundamentals as a buffer against those swings.