Who has been holding the U.S. debt?
Some facts about the U.S. federal debt:
- Federal debt held by the public was around 35% of GDP as recently as 2008. Now it’s up around 95% of GDP–a rise of about 60% of the US GDP in less than two decades.
- A substantial change in recent decades is the rising amount of US debt held by the Federal Reserve through its quantitative easing program. The Fed’s holdings of federal debt were around 5% of GDP before 2008 but increased significantly after the 2008 financial crisis and the COVID-19 pandemic. However, the Fed is now trying to phase down its federal debt holdings.
- Foreign holdings of US federal debt increased substantially from 2008 to 2014, accounting for about two-thirds of the increase in debt held by the public during that period.
- Since 2014, and even taking into account the additional rise in the US debt/GDP ratio associated with the pandemic, foreign holdings of US debt as a share of GDP have fallen. The appetite of foreign investors for US debt seems to be not limitless.
Who Has Been Holding the Rising Federal Debt: Some Snapshots
By: Timothy Taylor – Journal of Economic Perspectives (editor)
Who is buying U.S. Treasuries as the Fed reduces its holding?
In this note, Lucy Cordes and Erin Ferris provide insights into the buyers of Treasury securities during the Federal Reserve’s balance sheet reduction: between June 2022 and May 2024, the size of the System Open Market Account (SOMA), which contains the securities held by the Fed, declined by $1.6 trillion. Similarly, Treasury security holdings declined by $1.3 trillion, period from 2017 to 2019. The authors’ analysis is focused on these two periods and is based on regression models using data on Treasury holdings from various sources, including the Treasury International Capital (TIC) system and Form PF filings by hedge funds. The key findings are:
- Households and broker-dealers were the primary buyers of the additional supply of Treasury securities resulting from the Fed’s balance sheet reduction.
- Treasury security holdings of households are correlated with hedge fund holdings, suggesting that households may be investing through foreign hedge funds rather than domestic ones.
- During the balance sheet reduction period, foreign hedge funds increased their holdings of Treasury securities, while domestic hedge funds reduced their holdings.
- The study establishes that understanding the marginal buyer of Treasury securities during balance sheet reduction has implications for Treasury yield volatility.
Who Buys Treasuries When the Fed Reduces its Holdings
Authors: Lucy Cordes, Erin Ferris
From: Federal Reserve Board
