A burning question in these crazy times.
By Wolf Richter for WOLF STREET.
The US gross national debt outstanding has ballooned by over $5 trillion since early March 2020, to $28.4 trillion, where it has been stuck since August 1 when the debt-ceiling farce recommenced.
The burning question is who the heck bought these Treasury securities and who is holding them, given that everyone who is buying any of them now is getting crushed by historically steep negative “real” yields, with CPI inflation outrunning even the 30-year Treasury yield by 3.5 percentage points.
The Treasury Department released its Treasury International Capital data this afternoon. It tracks foreign holdings of Treasury securities by country through June. Now we can piece the holdings together, along with: the Fed’s holdings (per its weekly balance sheet); the banks’ holdings (per the Fed’s bank data); the holdings by US government entities, such as government pension funds (per the Treasury Department’s data); and holdings by other US entities, such as mutual funds and pensions funds (per data from SIFMA). And it’s quite a show.
Huge but fading importance of foreign creditors of the US.
Japan is the largest foreign creditor of the US. Since March 2020, its holdings have ticked up by less than $5 billion, to $1.28 trillion at the end of June, zigzagging up and down without going anywhere.
China is the second-largest foreign creditor of the US. In June, its holdings fell by $16 billion from the prior month to $1.06 trillion bouncing into the multi-year low of $1.05 trillion achieved during peak capital flight in December 2016. Since March 2020, China’s holdings fell by $21 billion:
But their importance as creditors to the US – once a huge concern because what are we going to do if they start dumping this paper? – has been fading for years because their holdings have been roughly stable, even as the US debt has exploded, and their share of the total US debt has been declining for years. In June, their combined share (purple line) fell to a new multi-year low of 8.2%, with China’s share falling to just 3.7% (red line):
The 10 biggest foreign holders after Japan & China are mostly tax havens and financial centers, some of them tiny countries. The exceptions are Brazil and India. At some of them, US corporations have established corporate entities where some of their Treasury holdings are registered, such as Apple’s holdings in Ireland.
- UK (“City of London” financial center): $453 billion
- Ireland: $323 billion
- Luxembourg: $302 billion
- Switzerland: $270 billion
- Brazil: $249 billion
- Cayman Islands: $244 billion
- Taiwan: $239 billion
- Belgium: $228 billion
- India: $220 billion
- Hong Kong: $219 billion
Germany and Mexico, the countries, along with China and Japan, with which the US has the biggest trade deficits, are way down the list.
Foreign holders in total – foreign central banks and government entities, foreign institutional investors and corporate entities, banks, and individuals – increased their holdings in June by $174 billion from the prior quarter, and by $253 billion since March 2020, to a record $7.2 trillion (blue line, left scale). But this accounted for only 25.2% of the incredibly spiking US National Debt (red line, right scale), the second lowest end-of-quarter percentage since 2007:
US government holdings rise to record, share drops to multi-decade low.
US government pension funds for military personnel and federal civilian employees, the US Social Security Trust Fund, and other federal government funds increased their holdings by $90 billion during the second quarter, and by $188 billion since March 2020, to $6.2 trillion (blue line, left scale).
But the Incredibly Spiking US National Debt totally outran those paltry increases, and the share of US government funds fell to a multi-decade low of 21.7%, down from a share of 45% in 2008 (red line, right scale):
Federal Reserve very busy.
The Fed increased its holdings of Treasury securities by $241 billion in Q2 and by $2.6 trillion since March 2020, more than doubling its holdings in 16 months (blue line, left scale), which brought its holdings in Q2 to a record of 18.2% of the Incredibly Spiking US National Debt (red line, right scale):
US Banks gorge on Treasuries.
US commercial banks increased their holdings of Treasury securities by $96 billion in Q2 and by $424 billion since March 2020, to a record $1.4 trillion, according to Federal Reserve data on bank balance sheets. They now hold 4.9% of the Incredibly Spiking US National Debt:
Other US institutional and individual investors.
These include mutual funds, US pension funds, money market funds, ETFs, US insurance companies, other US entities, and US-based individuals. We’re going to get to the biggest of these subgroups in a moment, based on SIFMA data through Q1. But here is their overall trend through June.
These US entities reduced their holdings in Q2 by $152 billion to $8.55 trillion (blue line, left scale), which reduced their share of the total US national debt to 30.0% (red line, right scale). Since March 2020, these holdings were up by $2.13 trillion:
Within this group of other US institutional and individual investors…
US Mutual Funds, Money Market Funds, & ETFs, from March 2020 through Q1 2021, increased their holdings of US Treasuries by $1.26 trillion, to a record of $3.9 trillion, according to the latest data available from SIFMA (Securities Industry and Financial Markets Association). This brought their share of the US National Debt to a record 13.9% at the end of Q1 (red line, right scale).
Note the massive jump in 2020, largely due to the increase in holdings by money-market funds. SIFMA has not yet released Q2 data, but it likely jumped in line with the situation we have been encountering starting in April with the Fed’s massive liquidity-mop-up operation via Overnight Reverse Repos (chart shows annual data; 2021 = Q1 level):
US Pension Funds trimmed their holdings in Q1 from the peak in Q4 2020, to $3.1 trillion, according to SIFMA. Over the years, they have steadily increased their holdings, but less fast than the US National Debt has surged, and their share of the total debt reached a multi-decade low of 11% in Q1, down from 18% in 2000:
Individual investors are a fickle bunch. They have been unloading their direct holdings of US Treasuries in 2020 and 2021 through Q1, to $1.54 trillion, down by $400 billion from the peak in Q4 2019, according to SIFMA (blue line, left scale).
Note, amusingly, the plunge in holdings to essentially zero from 2000 through the peak real estate frenzy in 2007. After the real-estate collapse, American fell in love with Treasuries again, though the yields were piss-poor. Their share in Q1 amounted to 5.5% of the monstrous US debt:
Insurance companies held $388 billion in Treasury securities in Q1, according to SIFMA. They’ve also been unloading Treasuries from the peak in Q3 2020 and their holdings are down a tad from Q1 2020.
The Monstrous US National Debt and who holds it, in summary:
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