The 10-year Treasury bond yield traded at 2.03 percent today a level not seen since April 2012. We thought it’s a good time to revisit who are the major holders of U.S. Treasury securities.   Some of the data are subject to caveats – noisy as some categories calculated as residuals and group various holders together — and how they are presented should be viewed as good approximations.  

Click on the charts to enlarge and for better resolution.

First, the total public debt of the U.S. government in Q3 2012 was $16.1 trillion (101.6 % of GDP), of which, $11.3 trillion (71.2% of GDP) was held by the public and $4.8 trillion by the government, such as the social security trust fund.   These data are reflected in the table below.

As of yesterday, current total U.S. public debt outstanding is $16.4 trillion, with $11.6 trillion held by the public and $4.9 trillion in intergovernmental holdings.

Chart 1 illustrates the profile of the debt.  For example, 63 percent of Treasury securities are in the form of notes that mature in one to ten years.




Chart 2 shows the major holders of U.S. Treasury securities at the end of Q3 2012.  Note that almost 50 percent is held by rest of the world and 14.6 percent held by the Fed.




Chart 3 divides the holders into official and private.  More than 46 percent of the holders are foreign official, mainly central banks, and the Federal Reserve.   That is, almost half of Treasury holders are not driven primarily by market incentives.  Much of the accumulation by foreign central banks has been the result foreign exchange intervention to keep their currencies from appreciating.

Today’s Wall Street Journal has an article about the potential capital losses the Fed will incur if interest rates rise.    It is important that investors internalize that half of Treasury holders are policy driven and not driven by profits/losses during major market moves.   Furthermore, as a global currency war looms it unlikely that foreign central banks will be dumping Treasuries en masse though they may continue to diversify their foreign exchange holdings into other currencies.




Chart 4 illustrates that almost half of the$5.6 trillion foreign holdings are from China and Japan.  Also note that more than 70 percent of Treasuries held by the rest of world are official holdings, i.e., central banks.




Finally, there is much talk today about how the bond market may be on the verge of a collapse similar to 1994.  We recall that during run up to the 1994 collapse everyone and their mother had leveraged yield curve plays on.

Not so today and the Fed’s monetary policy has made the bond market vigilante of the 1990′s extinct.  Not that they can’t be resurrected, but it is unlikely until the Fed steps out of the way.  It is our opinion,  the great “great rotation” will therefore result in a more orderly increase in rates.   Credit spreads may be a bit more volatile, however.

The table illustrates the profile of holders is much different than it was in 1994.   Households, which include hedge funds, now hold only 8 percent of the outstanding Treasuries versus around 20 percent in 1993.   Banks have gone from 9.2 percent to 2 percent.

The table also shows that 78 percent the almost $8 trillion increase in U.S. marketable Treasury debt from 1993 to Q3 2012 was taken down by the rest of the world and the Fed.  Stunning!




The “exorbitant privilege”  * of being the international reserve currency has driven a  massive amount of liquidity into the U.S. markets, which has:  1)  enabled the federal government to run large budget deficits;  2) supported the value of the dollar;  3) reduced inflation and increased real incomes;  4)  distorted U.S. interest rates;  and 5)  helped fuel the  stock market and housing bubble.

No end in sight until the world moves off or the current international monetary regime collapses.

 * For a great overview,  see Barry Eichengreen’s,  Exorbitant Privilege: The Rise and Fall of the Dollar and the Future of the International Monetary System.

(click here if charts and table are not observable)

Category: Fixed Income/Interest Rates, Think Tank

Please use the comments to demonstrate your own ignorance, unfamiliarity with empirical data and lack of respect for scientific knowledge. Be sure to create straw men and argue against things I have neither said nor implied. If you could repeat previously discredited memes or steer the conversation into irrelevant, off topic discussions, it would be appreciated. Lastly, kindly forgo all civility in your discourse . . . you are, after all, anonymous.

11 Responses to “Who Owns the U.S. Treasury Market?”

  1. gloeschi says:

    Stock is one thing. Flow is another. Would have been interesting to see TTM flows.

  2. jaytrader says:

    Its really unfathomable to me that in the year 2013 the WSJ still writes articles about the Economy and not have the slightest clue of how our economy actually works. The simple fact that these dolts talk about Capital Loses at the Fed assumes they know less than nothing about anything. The Fed reports to the Treasury. The Treasury controls the currency. Who cares about capital loses! Goodness.

  3. RB007 says:

    jaytrader, I had this very discussion with an economist early last year. Right now the Feds balance sheet is really leveraged, and a small price drop in bonds would eat away their equity pretty quickly. The Fed could not go bancrupt because they can just produce assets (print money), is this what you are getting at, or is there something else I am missing?

  4. Moopheus says:

    ” WSJ still writes articles about the Economy and not have the slightest clue of how our economy actually works.”

    They believe that the institutions that have the power to create money can run out of money. Partly because they refuse to accept the notion that money is an invention of human culture; it doesn’t exist in nature. Money is whatever we agree to accept as money. It’s fundamentally not limited in the way a physical resource is. The sticky point is that our economic system says that value is dependent on scarcity. A resource that is unlimited therefore has no value. So we create various arbitrary and artificial limits on the money-resource. Some people apparently get very hung up on the various mechanisms of limitation and lose track of the fact that at root they are all arbitrary and artificial. This seems to be even more true now that for all practical purposes money has been reduced to an almost purely informational level stripped of material representation. This freaks people out, even people who accept this being done to books, music, movies, newspapers, etc. The editors of the WSJ clearly have a hard time mentally processing the abstraction layer of money (though I’d guess also they would be loathe to give up the conveniences that the abstraction allows–such as nearly universal electronic payments for goods and services, online banking, etc. and etc.)

  5. WB says:

    Ha Ha, What a joke WSJ is

    Fed doesn’t lose any money.

    1) It can hold all the assets to maturity and make it just expire.
    2) It can print money.

  6. bonzo says:

    @moorpheus: If money is strictly limited, then it means the government will have to cut spending on the lower echelons (social security, medicare, medicaid, food stamps, etc). That is music to the ears of the WSJ readership, and that is why the WSJ editors write the way they do. About some topics (corporate mergers and other dull stuff), the WSJ readership wants the truth. About macroeconomics, the readership wants propaganda. What they want is what they get.

  7. Angryman1 says:

    The FED is irrevelant to the bond market. It could “sell off”, big deal. It needs to. The Boomer’s have the biggest share and it isn’t close. They need somewhere else to park money.

  8. jaytrader says:

    The point that is missed here is the Treasury can not go bankrupt. It is impossible. As the monopoly issuer of base money in a non convertible floating rate currency mechanism the Treasury is the only issuer of the currency. They own the currency. There is no risk of running out of money. There is no risk of bounced checks. There are two primary risks. One Political which is the stupid debt ceiling which is not to pay future bills or appropriations but past obligations that our beloved Congress has already voted on and approved. The other risk is Hyperinflation or a total loss of integrity and faith in the currency. We are in a current deflationary scenario with regard to hard assets. So the idea that the Federal Reserve which reports to the Treasury is in trouble as rates have backed up is beyond nonsensical and preposterous. The Federal Reserve can hold these notes/bonds till maturity. What happens then? They get retired. Its an accounting entry. Finished. Kaput. ..I can just assume there are many idiots out there waiting for the Federal Reserve to get a margin call…They will be waiting a long time.

  9. constantnormal says:

    “… and $4.8 trillion by the government, such as the social security trust fund. These data are reflected in the table below.”

    I can’t find any other reference to the Social Security chunk of the aggregate US Treasury market. It appears on none of the charts, or else is disguised under some category, like “Households and nonprofit organizations”.

    Surely Social Security is large enough to be presented as its own slice in this pie …

  10. constantnormal says:

    At the end of 2011, the Social Security funds covering retirement, survivors’ benefits, and disability amounted to about 18.7% of the $14.34T in national debt that existed then. Surely it did not disappear during 2012?

    An 18.7% lump is too large to hide in any of the other plausible categories …

    These’s something wrong with these charts …

  11. constantnormal says:

    I forgot to post my data sources in that last item :

    Google Public Data Explorer – US Debt