But opaque foreign financial centers pile on Treasuries, often held by US companies and hedge funds.
By Wolf Richter for WOLF STREET.
Treasury securities have lost their allure for foreign central banks and governments, whose holdings declined this year and in July dropped to $3.77 trillion at market value, roughly where they’d been in 2012, according to the Treasury Department’s TIC data.
But over this period, since 2012, the amount of Treasury securities outstanding has about tripled, according to the Dallas Fed market-value data (via St. Louis Fed). And inflation since 2012 was 48%. And the share of these “foreign official” holdings has collapsed from a share of 34% of marketable Treasury securities in 2012, and from a share of over 38% at the peak in 2007-2009, to a share of 12.8% in July, the lowest share since 1993.
There are three aspects to this:
- Treasury securities have become increasingly unappetizing for foreign central banks and governments.
- The US has become a lot less dependent on foreign central banks and governments to finance its massive out-of-control deficits.
- The US has become more dependent on opaque foreign financial centers, where US hedge funds and companies keep their holdings.
Foreign holders in total – foreign official holders and foreign private holders – shed $50 billion of Treasury securities in July, bringing their holdings down to $9.25 trillion (red in the chart below). Those total holdings kept zigzagging higher over the years and reached a peak in February, driven by private foreign holdings.
Long-term Treasury notes and bonds accounted for $7.78 trillion, or about 84%, of the total foreign holdings (blue line). The rest were short-term Treasury bills.
But these private foreign holdings are not purely “foreign.” They include large amounts from US hedge funds that are domiciled in foreign financial centers, such as the Cayman Islands, a big favorite for hedge funds engaged in the highly leveraged Treasury basis trade that buy Treasuries, estimated at close to $2 trillion, and sell Treasury futures against them. This is the hot money in Treasuries, and back in March 2020, it caused the Treasury market to seize, an event that the Fed keeps nervously talking about. Only now, it’s a lot bigger.
And they include holdings by US companies that have entities in Ireland and elsewhere where they keep their foreign profits, instead of repatriating them to the US and paying income taxes on them in the US. Apple became a poster boy of that during a Senate investigation in 2013. US Big Pharma has set up in Ireland for these reasons. And those Treasuries are included in “foreign private” holdings because the entities that hold them are registered in foreign countries.
But their share of marketable Treasury securities outstanding declined to a near-record low in July of 31.9%, roughly matching three months in 2020, when the US government had issued about $3 trillion in new debt in three months, and the Fed had bought $3 trillion in three months.
Japan dumped Treasury holdings, shedding $13 billion in July. From February through July, Japan reduced its Treasury holdings by $135 billion.
Japan is trying to put a floor under the collapsing yen and had engaged in multiple rounds of currency market interventions, selling dollars and buying yen. It sold Treasury securities in advance of the intervention to obtain the dollars and to sell them in the currency market and buy yen.
These sales are hugely profitable in yen-terms for the Japanese government since it purchased the securities with much stronger yen years ago, and now gets many more yen from the proceeds due to the yen’s plunge against the dollar. As many of the sold securities were close to their maturity dates, and therefore brought close to face value, the losses in dollar terms due to higher yields were minimal. There are public discussions underway in Japan about what to do with these profits from the Treasury trade. Spend them is part of the answer. Don’t cry for Japan.
Mainland China and Hong Kong combined have been relentlessly dumping their Treasury holdings since 2015, and that continued in July, when they shed $13 billion, bringing the 12-month total reduction to $67 billion.
Since the peak in 2015, they have shed $587 billion. And their share has dropped to an inconsequential 3.0% of the marketable Treasury securities outstanding.
Opaque financial centers rule. Treasury holdings in the seven largest financial centers combined rose to $3.28 trillion. Those seven account for about 11% of all marketable Treasury securities outstanding, and about 35% of all foreign holdings!
In order of the magnitude of their holdings:
- United Kingdom ($1.0 trillion), actually the City of London, the largest financial center in the world;
- Belgium ($471 billion), home of Euroclear;
- Cayman Islands ($460 billion) where US hedge funds are domiciled;
- Luxembourg ($442 billion);
- Ireland ($350 billion);
- Switzerland ($285 billion);
- Singapore ($278 billion).
Canada’s Treasury yoyo: In July, its holdings plunged by $33 billion to $426 billion, undoing more than the spike in the prior month. The high was in September 2025 ($476 billion).
The recent massive yoyo makes me think that we’re looking at data collection noise, and not at some investment choices Canadians are making.
France’s holdings plunged in July by $42 billion from record levels, to $348 billion. The French banking system also has characteristics of financial centers.
Taiwan’s holdings fell by $6 billion in July, to $296 billion:
Norway’s holdings rose by $4 billion in July, to $207 billion, after four months of declines, and was essentially unchanged from a year ago.
The tiny country is home to the world’s largest sovereign wealth fund, the Government Pension Fund Global, also known as the Oil Fund, which has $2.3 trillion in assets under management, including Treasuries.
The fund manager has now proposed to reduce its bond holdings in general, and most of the reductions would hit its Treasury holdings, which could be cut by about $80 billion. So we’ll see if that happens.
India’s holdings jumped by $16 billion in July, to $203 billion, but still down by $17 billion year-over-year.
Brazil’s holdings have been roughly unchanged since October last year, at $168 billion in July, down by 46% from the peak in 2018.
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Real interest rates have declined making holding Treasuries less appealing.