A holder of Treasuries might be concealing another. However, this decreased appeal is not reflecting a significant deterioration in official foreign investors' confidence in Treasuries thus far.
Firstly, the breakdown of Treasury holdings by country or holding sector, as published by the US Treasury, is slightly misrepresentative. Some foreign investors entrust the management of their securities portfolios to custodians that are based neither in the United States nor in their country of residence[2]. This tends to distort the breakdown by country by inflating the portfolios of the primary locations for securities custody (Belgium, the Caribbean, Ireland, Luxembourg, Switzerland and the United Kingdom), as well as the breakdown by holding sector by increasing the holdings of non-resident private investors (Tabova and Warnock, 2021). The most well-known example is China (Setser, 2023).
Secondly, only a small number of countries (across all sectors) have significantly reduced their exposure to Treasuries over the past ten years (China, Japan, Russia, Turkey and Brazil). Statistics for April 2025 also dispelled rumours of a massive sell-off of official investor portfolios following the announcement of tariff increases[3] (Chart 5).
NET PURCHASES OF TREASURIES BY THE REST OF THE WORLDThirdly, the decrease in the weighting of official investors has been partly due to the slow growth of official foreign exchange reserves since 2014[4], but also to the diversification strategies of foreign central banks. Some of them had ‘surplus’[5] reserves and wanted to invest them in less liquid but more profitable assets (Arslanalp, Eichengreen, Simpson-Bell, 2022).
Finally, foreign central banks are also financing the US Treasury indirectly by repurchasing securities held on the Fed's balance sheet. On 13 August, central banks' outstanding ‘deposits’ with the Fed under the FIMA Reverse Repo facility stood at USD 345 billion, close to their all-time high.
The weight of non-resident private investors increased
Conversely, holdings of Treasuries by the non-resident private sector (insurance companies, pension funds and hedge funds) have increased in value over recent years (buoyed by net purchases and valuation effects, to USD 5,124 billion in Q1 2025) and as a proportion of total outstanding Treasuries (19.1%, Charts 3 and 4).
This breakdown can be refined using Securities and Exchange Commission (SEC) data on the overall exposure to Treasuries (outright holdings, borrowing and derivative positions) of the largest active hedge funds in the United States and using Commodity Futures Trading Commission (CFTC) data on leveraged fund positions on the Treasuries derivative markets (futures and options)[6]. Supporting this data, it appears that 43% of non-resident private investors' exposure to Treasuries was concentrated in non-resident hedge funds in Q1 2025 (compared to 18% at the end of 2014). In total, resident and non-resident hedge funds held 9%[7] of marketable federal debt (Chart 6), compared with 4% at the end of 2014.
CREDITORS OF THE US FEDERAL GOVERNMENT As these investors have a shorter investment horizon and as they do not favour Treasuries for their safe-haven status, but instead would prefer to make bets and leverage their positions, it is not surprising that their increasing weighting among Treasury creditors comes alongside greater volatility in Treasury yields. During the COVID crisis in March 2020 and the tariff shock last April, their arbitrage undoubtedly undermined the safe-haven status of US bonds. During these two episodes of tension, they quickly unwound their positions in response to margin calls and deteriorating borrowing conditions on the repo markets in March 2020 (Duffie, 2020, Vissing-Jorgensen, 2021), and then in response to changes in swap spreads[8] in April 2025 (Perli, 2025). These simultaneous unwindings exacerbated the rise in yields due to revisions of inflation and growth expectations by all investors.
Factors supporting demand for T-bills
A more favourable monetary environment
Since the 2016 reform, money market funds (MMFs) have shown strong appetite for T-bills[9]. Between mid-2023 and the end of 2024, rising interest rates boosted money market fund inflows. MMFs largely exited the ON RRP facility[10] and reallocated their assets to Treasuries and repurchase markets (Chart 7). In the first half of 2025, the reintroduction of the federal debt ceiling made T-bill issuance scarce. The increase in the ceiling (approved this summer) and the environment of higher interest rates should now enable MMFs to expand their T-bill portfolios again.
THE REBALANCING OF US MONEY MARKET FUND PORTFOLIOSThe Federal Reserve's operational framework should also be favourable to T-bills. In early June, the Fed presented a potential trajectory for its balance sheet. It assumes that its balance sheet reduction programme (QT2) will end in January 2026, followed by a six-month pause and then a resumption of Treasury purchases of around USD 30 billion per month in order to maintain reserves at 8.7% of GDP[11]. Several members of the Monetary Policy Committee have also expressed their desire for the Fed's securities portfolio to become ‘broadly neutral’ over time, i.e. for its maturity structure to be similar to that of outstanding Treasuries. Given the weighting of T-bills in the Fed's Treasuries portfolios (4.7% in the first half of 2025, compared with 22% in the market), the Fed is likely to focus its purchases largely on T-bills.
Stimulating demand from stablecoin issuers
Signed into law on 18 July, the Guilding and Establishing National Innovation for US Stablecoins Act (GENIUS Act) will increase the appeal of T-bills for stablecoin issuers. This legislation requires issuers of dollar-denominated stablecoins[12] to fully back their issues with reserves made up of coins and banknotes, bank deposits, Treasury bills with a maximum residual maturity of 93 days, repurchase agreements or reverse repurchase agreements involving T-bills, money market fund shares invested in T-bills, or deposits with the Fed. The Treasury Borrowing Advisory Committee (TBAC) [13] estimates that the GENIUS Act could increase the market capitalisation of stablecoins to USD 2 trillion by 2028 (compared to around USD 250 billion currently) and increase demand for T-bills from stablecoin issuers by at least USD 800 billion in four years (bringing their holdings to more than USD 1 trillion, compared to USD 120 billion in 2024).
However, this stimulus does not come without risks. While it facilitates the placement of federal debt and tends to lower yields on short-term securities, the rise of stablecoins could increase the vulnerability of the Treasury market in times of stress (Ahmed and Aldasoro, 2025; Shin, 2025). Should there be a run on issuers' liabilities (redemption requests), issuers could be forced to sell large quantities of securities in an emergency, causing bond yields to rise and losses for savers. Furthermore, the net effect on demand for Treasuries may not be as high as expected (Choulet and Quignon, 2025). The impact will depend on the structure of stablecoin issuers' reserves, the origin of the funds raised by subscribers, and how the central bank and commercial banks adjust their securities portfolios. The subscription to stablecoins by individuals could, in fact, be at the expense of their holdings of Treasury securities[14] or their deposits and cash.
Threats to non-residents weaken the appeal of Treasuries
Rumours of taxation
The safe-haven status of Treasuries is a product of the Bretton Woods Agreement, which, in the aftermath of the Second World War, placed the dollar at the heart of the international financial and monetary system. Even when the United States unilaterally suspended the convertibility of the dollar into gold in 1971, effectively ending the Bretton Woods Agreement, the greenback's central place in the world remained intact, supported by the institutions set up by American policymakers: an independent Federal Reserve, an open global trading system, a strong geopolitical alliance and an unwavering rule of law (Eighengreen, 2025). The dollar's continued dominance stems from gross figures (the size of the US economy, the depth of its financial markets and the weighting of the greenback in trade and financial transactions), but also from relationships and reciprocity.
However, rumours of taxation on non-residents, in return for the ‘privilege’ of holding dollars as reserve assets, have not gone away since Donald Trump's return to the White House. Theyundermine the appeal of Treasuries and run counter to the international status of the dollar, which presupposes fair treatment of investors. Based on the incorrect assumption that the dollar's status as an international reserve currency forces the United States to run a structural current account deficit, the ‘Mar-a-Lago Accord’, theorised by Stephen Miran, Chairman of the Council of Economic Advisers (CEA) and proposed by Trump as a temporary member of the Fed's Board of Governors[15], poses a latent threat (Miran, 2024). He suggests forcing major foreign holders of Treasury securities to revalue their currencies or convert their holdings into 100-year or even perpetual securities in exchange for benefits such as security guarantees or privileged access to the US market. Although this ‘accord' has not materialised, the vision of the US dollar as a global public good, provided by the United States and whose ‘cost’[16] should now be borne by all, is now part of the White House's ideological corpus.
The Fed's role called into question
The initial version of Section 899 of the One Big Beautiful Bill Act[17] has reignited these concerns. Its provisions aimed to discourage foreign countries from harming US economic interests by adopting taxes that are viewed as discriminatory. In practice, repatriated profits and capital income earned by corporates and investors in the countries affected were expected to be subject to additional taxation. Admittedly, the measure did not apply to portfolio interest[18], i.e. interest on US Treasury securities held by foreign investors. However, its lack of clarity and past threats of taxation increased fears among foreign investors.
Threats to challenge the independence of the central bank, stemming from an agreement reached in 1951 by the Fed and the Treasury, also undermine the appeal of Treasuries. Donald Trump's most explicit threats around the potential replacement of Jerome Powell[19] caused 10-year yields to rise by 11 basis points between 17 and 22 April, before his own statements helped to ease tensions in the days following. Since then, the Supreme Court's assertion of the Fed's unique status[20] has seemingly reduced the sensitivity of bond markets to the US President's statements.
However, Jerome Powell's mandate will expire in May 2026 and the choice of his successor will be closely scrutinised. On the one hand, a central bank showing greater tolerance, even indirectly, to inflation could result in higher borrowing rates in the United States via an increased inflation premium. On the other hand, a central bank that is more willing to use large-scale purchases of government securities, outside periods of tension, to compensate for the lack of demand would be a major source of destabilisation.
The Fed's role as global central banker has also been called into question. In fact, the swap agreements between the Fed and major foreign central banks[21] are based on a legal foundation that offers little protection. In order to implement them, the Fed relies on an interpretation of Section 14 of the Federal Reserve Act, which contains no direct reference to liquidity swaps (Perry, 2020). Congress has tacitly approved these operations, but there is no formal legal framework for them. Their foundation is all the more fragile given that the Monetary Policy Committee must renew them every year, even in the case of so-called ‘permanent’ agreements. However, without these agreements, the Fed would no longer be able to act as a global lender of last resort, a role conferred on it by its status as issuer of the international exchange and reserve currency.
Nevertheless, the Fed's swap lines are an effective tool for preserving financial stability and the safe-haven status of Treasuries (Choulet, 2020). By facilitating access to the greenback for non-residents, swap lines and the FIMA repo[22] effectively eliminate the risk of emergency sales of Treasury securities (which would cause yields to rise) or large borrowing on the US FX swap and repo markets (which would weigh on primary dealers’ balance sheets and reduce their ability to act as intermediaries on the markets). In doing so, these agreements reduce the risk that, in times of crisis, difficulties in accessing dollars will destabilise the Treasury market and worsen financing conditions for the US economy. Outside of periods of stress, the FIMA repo is also an instrument that can increase official investors' demand for Treasuries. Singh (2023) estimated that 80% of official holdings of US Treasury securities were held by countries that had entered into a swap agreement with the Fed or had requested access to the FIMA repo.
Completed on 20 August 2025
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