US Treasury debt surged by $441 billion since the debt ceiling, to $36.7 trillion. Foreign demand for this stuff is an increasingly important issue.

By Wolf Richter for WOLF STREET.

The recklessly ballooning US national debt has surged by $441 billion in the two weeks since the debt ceiling was lifted, and by $1.71 trillion in 12 months, to $36.66 trillion. How this debt will blow out during the next recession when tax receipts plunge and expenditures explode is not anything we’d want to even think about.

Will foreign investors continue to buy this debt or will even more of it have to be absorbed by domestic investors? That question is high up on the worry-list. So far, there has been enough demand to keep long-term yields relatively low in this inflationary environment, with the 10-year yield currently under 4.5% and the 30-year yield at around 5.0%. A lack of demand would push Treasury yields up, and mortgage rates with them – until enough new investors find it appealing and buy it. So we keep an eye on who is still buying this debt.

Demand from foreign investors.

Foreign investors increased their holdings of Treasury securities by $32 billion in May, and by $915 billion year-over-year, to $9.05 trillion, just a hair below the record two months earlier, according to Treasury Department data Thursday afternoon (red line in the chart below). Of that total, $7.64 trillion (84.5%) were long-term Treasury securities (blue), and the rest were short-term T-bills.

But “foreign official” holders, such as central banks and government entities, have trimmed their stash of Treasury securities over the years. And their holdings dipped again in May to $3.90 trillion (blue in the chart below).

Private foreign investors – such as financial firms, companies, bond funds, individuals, etc., in foreign countries – have piled on Treasury securities from record to record. In May, their holdings jumped by $55 billion, and by $815 billion year-over-year, to a record $5.15 trillion (red).

China and Hong Kong v. the Euro Area.

China and Hong Kong combined have reduced their holdings from $1.45 trillion in 2015 to $1.01 trillion in May, up marginally from the low point in October 2023 when they ended the years-long process of unloading.

Month to month, the holdings of China and Hong Kong combined ticked up by $4 billion, and year-over-year by $16 billion (blue).

The countries of the Euro Area have bought US Treasury securities hand-over-fist for the past 12 years, more than tripling their holdings, from $534 billion in 2012 to $1.87 trillion now (red).

Month over month, their holdings declined by $6 billion from the record in the prior month. Year-over-year, their holdings surged by $261 billion.

The biggest holders in the Euro Area are the financial centers (Luxembourg, Ireland, Belgium) and France, whose banking system also functions as a global financial center. Their combined holdings, at $1.53 trillion, account for 82% of the Euro Area’s total holdings. More in a moment.

Japan’s holdings of Treasury securities were roughly unchanged in May from April and rose by $29 billion year-over-year.

Despite the large fluctuations over the years, current holdings are roughly where they’d been 12 years ago.

Since 2022, Japan has tried to put a floor under the plunge of the yen, and in the process sold large amounts of its dollar-holdings, including Treasury securities. The Bank of Japan is now engaging in QT and has accelerated QT, which may have been more important in forming a floor under the yen, than the government’s sporadic foreign currency interventions.

The seven largest financial centers have been on a massive buying binge. Their holdings surged to a record in April, but in May declined by $17 billion, to $2.96 trillion. Over the past 12 months, their holdings surged by $370 billion (+14%!).

But a portion of the holdings at these financial centers are held by US entities. These countries specialize in handling the financial holdings of global companies, individuals, and governments. Ireland is a favorite for US Big Pharma and Big Tech to store their profits. Belgium is home to Euroclear, which has $40 trillion in assets under custody for companies, governments, and wealthy individuals around the world. The United Kingdom here means the “City of London,” the top financial center in the world.

Changes in May, and total Treasury holdings:

• United Kingdom: +$2 billion, to $809 billion
• Cayman Islands: -$7 billion to $441 billion
• Belgium: +$4 billion to $415 billion
• Luxembourg: +$2 billion, to $413 billion
• Ireland: -13 billion to $327 billion
• Switzerland: -$7 billion to $304 billion
• Singapore: +$2 billion to $249 billion.

The United Kingdom — actually the “City of London” — is by far the biggest financial center:

Canada’s holdings majestically re-spiked by $61 billion in May, to a new record of $430 billion, undoing the massive plunge in April.

The trade chaos, which is intensely felt in Canada, has introduced unprecedented volatility in its Treasury holdings. But but but… they hit a new record. Since March 2021, holdings have more than quadrupled!

France’s holdings jumped by $15 billion month-to-month, and by $92 billion from a year ago, to a record $375 billion. France’s megabanks are global financial centers.

Taiwan’s holdings fell by $6 billion in May to $293 billion, but were still up by $28 billion year-over-year:

India’s holdings edged up $3 billion in May, to $235 billion, but were still down by $2 billion year-over-year. The high was in September 2024 at $247 billion:

Brazil’s holdings were roughly unchanged at $212 billion in May, and down by $11 billion year-over-year. Since the peak in 2018, its holdings have fallen by one-third:

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