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The US Treasury market plays a key role in how the federal government funds spending through debt and retains the world’s largest title. The sector has also recently focused in market volatility due to uncertainty over tariffs, but has the most liquid government bond market.
The US Treasury Department is typically seen as a safe haven for investors during periods of economic and financial market turmoil, with federal support, serving as a “risk-free” asset that is very unlikely to default and is used as a benchmark for other fixed-income securities. Due to the long-standing position of the Treasury as a safe haven, foreign governments hold about 24% of the total US government debt.
The recent financial market disruption brought on by President Donald Trump’s tariffs led investors to initially flocked to the Treasury Department, pushing 10-year yields to under 4%, but the sale rose to about 4.5% as uncertainty exacerbated investor concerns and yields. In 2024, the Treasury yield for 2010 fluctuated between about 3.7% and 4.7%.
Recent volatility also raised concerns that foreign governments and investors are selling their finances due to relative safety concerns amidst the uncertainty caused by sustained and growing federal budget deficits and tariffs and trade policies.
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The US Treasury, issued by the Treasury, has historically been considered a safe home asset by investors. (Nicolas Economou/Nurphoto via Getty Images)
A recent analysis by Allianz Economists noted that increasing Treasury yields usually result in a stronger US dollar as foreign capital pursues these higher yields. However, this example shows that as yields rise, the dollar weakens, suggesting that “main owners not only sell the Treasury Department, but also convert revenues into currency.
Treasury data since the end of February before the recent sale at the Treasury is presented as the 10 largest foreign holders of the US Treasury.
- Japan: $1.125 trillion
- China: $784 billion
- UK: $700 billion
- Cayman Islands: $418 billion
- Luxembourg: $413 billion
- Canada: $400 billion
- Belgium $395 billion
- France: $354 billion
- Ireland: $33.9 billion
- Taiwan: $29.5 billion
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Other countries with significant US Treasury holdings as of the end of February include:
- Switzerland: $29.1 billion
- Hong Kong: $274 billion
- Singapore: $260 billion
- India: $228 billion
- Norway: $162 billion
- Saudi Arabia: $126 billion
- South Korea: $125 billion
- United Arab Emirates: $120 billion
- Germany: $100 billion
Treasury Secretary Scott Bessent said the recent bond market sale was due to DelaveRaging. (Kayla Bartkowski/Getty Images)
All other countries hold a total of $1.642 trillion in US Treasury, but the total, including major Treasury holders, is $8.817 trillion as of the end of February.
Foreign holders selling large U.S. Treasury departments can pose challenges to federal budgets as interest rates could rise accordingly.
This is due to the inverse correlation between bond prices and yields. Bond prices drop as investors seek higher returns on their investments. When bond prices rise as they go up and down, investors will pay a higher price premium for what is considered a relatively safe asset due to low yields.
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The increased federal government’s fiscal deficit raised concerns about the Treasury’s desirability for investors as a safe haven. (istock)
Last fiscal year, the federal government spent about $88.1 billion on interest costs resulting from the need to serve national debt of more than $36 trillion. This was the first time federal spending on interest costs has been greater than two major line items in the government ledger (DF budget and Medicare), contributing to an annual budget deficit of more than $1.8 trillion per year.
These interest costs are about twice the amount spent on large national debt in 2021, and have increased at a fast pace over the past few years, not only due to increased interest rates on debt, but also increased debt.
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An analysis by the Non-Participant Congressional Budget Office (CBO) shows that interest costs for this fiscal year are expected to rise to an additional $9520 billion, or a record 3.2% of gross domestic product (GDP). That trend is expected to continue, with interest costs reaching an estimated 5.4% of GDP by 2055. Ten years later, the CBO predicts that the average interest rate on national debt will exceed economic growth.
