Quick Bites | Foreign Holders of US Debt

The year to date has seen extraordinary volatility in the US Treasury market as the mood has swung from fears of inflation (yields go up) to worries about recession (yields go down). But who are the largest holders of US debt? The chart below shows us that foreign investors held $7.3 trillion of the national US debt last year. These holdings declined 6% in 2022 amid a strong US dollar and rising rates.

Source: Visual Capitalist


US Treasury securities are amongst the most liquid asset markets worldwide and are used as a hurdle rate for determining investment risk. Central banks use US Treasuries for foreign exchange reserves and private investors flock to them during flights to safety due to their perceived low default risk.

Beyond these reasons, foreign investors buy Treasuries as a store of value. They are often used as collateral during international trade transactions, or countries can use them to help manage exchange rate policy. For example, countries may buy Treasuries to protect their currency’s exchange rate from speculation.

With $1.1 trillion in US Treasury holdings, Japan is the largest foreign holder of US debt. Japan passed China as the top holder in 2019 as China shed over $250 billion, or 30% of its holdings, in four years. The offloading of US debt by China is one way it manages the yuan’s exchange rate. At the same time, China doesn’t solely use the US dollar to manage its currency – it now uses a basket of currencies. It is perceived to be in China’s strategic interest to weaken the US dollar’s dominance as the world’s reserve currency.

The UK is the third largest holder of US debt with about USD650 billion held in Treasuries. Australia is not a large holder and is only the 24th largest foreign investor with around USD57 billion held in US bonds (less than 1% of the total market).



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