Treasury securities have become markedly less attractive to foreign central banks and governments: foreign official holdings fell to about $3.77 trillion in July - roughly the level of 2012 - even as total marketable Treasuries have roughly tripled since then and inflation has risen about 48%. As a result, foreign official share of marketable Treasuries plunged from roughly 34% in 2012 (and over 38% at the 2007-2009 peak) to just 12.8% in July, the lowest since 1993. Total foreign holdings (official plus private) dropped to $9.25 trillion, and foreigners’ share of marketable Treasuries slid to about 31.9%, signaling that the U.S. is less dependent on sovereign creditors to fund deficits while facing a shift in who holds its debt.
The shift favors opaque foreign financial centers and private players: seven major centers (City of London, Euroclear/Belgium, Cayman Islands, Luxembourg, Ireland, Switzerland, Singapore) now hold about $3.28 trillion - roughly 35% of foreign holdings. Much of the “foreign private” stock is actually U.S. hedge funds and corporations domiciled abroad (Cayman-based hedge funds running the leveraged Treasury basis trade are estimated near $2 trillion) or U.S. companies parking profits in Ireland. Major sovereign moves include Japan’s $135 billion selloff (Feb-Jul) to support the yen, and China/Hong Kong’s $587 billion reduction since 2015. These flows increase reliance on hot, opaque money and raise market-risk and volatility concerns for the Treasury market.
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