Presentation to the Treasury and 

the Treasury Borrowing Advisory 

Committee

February 1st, 2005 st
Question: 

While the stock of Treasury debt is well 

within historical and international norms as 

a percentage of GDP, questions have been 

raised about whether the large proportion 

of total debt held by foreigners creates risk 

for the Treasury. We would like the 

Committee’s views on whether the high 

percentage of foreign ownership of 

Treasuries outstanding creates risks for 

future Treasury financing, broader risks to 

the US economy, or, instead, reflects the 

efficient use of Treasury securities as a 

financing and investment vehicle.
Foreign Holdings of Treasury Debt 

Pass 50% of the Total

0

10

20

30

40

50

60

1950 1955 1960 1965 1970 1975 1980 1985 1990 1995 2000 2005

0

10

20

30

40

50

60

Foreign Holdings of Treasury Debt (% of Total Held by Non-Fed Public)

0

10

20

30

40

50

60

1950 1955 1960 1965 1970 1975 1980 1985 1990 1995 2000 2005

0

10

20

30

40

50

60

Foreign Holdings of Treasury Debt (% of Total Held by Non-Fed Public)

Source: Federal Reserve Board, Haver Analytics.

n In the past decade, foreign ownership of Treasury debt has 

risen from 20% to over 50%

n It had been stable at around 20% from 1970 to 1995

n

n
Foreign Ownership Up Despite 

Modest Growth of Treasury Debt

Source: Federal Reserve Board, Haver Analytics.

n During the past decade, growth in Treasury supply has 

been modest 

– Budget deficit has averaged under 1% of GDP

– Treasuries outstanding have grown less than 2% per 

year

n Despite a decline in outstandings from 45% to 30% of 

GDP, foreign holdings have nearly doubled as a share of 

GDP

n During the past decade, growth in Treasury supply has 

been modest 

– Budget deficit has averaged under 1% of GDP

– Treasuries outstanding have grown less than 2% per 

year

n Despite a decline in outstandings from 45% to 30% of 

GDP, foreign holdings have nearly doubled as a share of 

GDP

0

2

4

6

8

10

12

14

16

18

50 60 70 80 90 00

0

2

4

6

8

10

12

14

16

18

Foreign Holdings of Treasury Debt (% of

GDP)

0

2

4

6

8

10

12

14

16

18

50 60 70 80 90 00

0

2

4

6

8

10

12

14

16

18

Foreign Holdings of Treasury Debt (% of

GDP)

0

10

20

30

40

50

60

50 60 70 80 90 00

0

10

20

30

40

50

60

Treasury Debt (% of GDP)

0

10

20

30

40

50

60

50 60 70 80 90 00

0

10

20

30

40

50

60

Treasury Debt (% of GDP)
Treasuries Now a Smaller 

Proportion of US Financial Markets

Source: Federal Reserve Board, Haver Analytics.

n The result has been that domestic Treasury holdings have 

fallen as a share of GDP to a near post-WWII low

n Even as deficits have risen recently, domestic ownership 

has done no more than stabilize

n Given the increased size of financial markets relative to 

GDP, Treasuries are now a much smaller share of securities 

outstanding

n The result has been that domestic Treasury holdings have 

fallen as a share of GDP to a near post-WWII low

n Even as deficits have risen recently, domestic ownership 

has done no more than stabilize

n Given the increased size of financial markets relative to 

GDP, Treasuries are now a much smaller share of securities 

outstanding

1500

1700

1900

2100

2300

2500

2700

1989 1994 1999 2004

1500

1700

1900

2100

2300

2500

2700

1500

1700

1900

2100

2300

2500

2700

1989 1994 1999 2004

1500

1700

1900

2100

2300

2500

2700

0

50

100

150

200

250

300

1950 1960 1970 1980 1990 2000

0

5

10

15

20

25

30

35

40

45

50

Marketable Securities as % of GDP (Lt Axis)

Treasuries as % of Domestic Marketable

Securities (Rt Axis)

0

50

100

150

200

250

300

1950 1960 1970 1980 1990 2000

0

5

10

15

20

25

30

35

40

45

50

Marketable Securities as % of GDP (Lt Axis)

Treasuries as % of Domestic Marketable

Securities (Rt Axis)

Domestically Held Treasury Debt (Bil. $)
Foreign Buying Has Come from both 

the Private and Official Sectors

0

10

20

30

40

50

60

70

80

90

100

1950 1955 1960 1965 1970 1975 1980 1985 1990 1995 2000 2005

0

10

20

30

40

50

60

70

80

90

100

Official Holdings of Treasury Debt (% of Total Foreign Holdings)

0

10

20

30

40

50

60

70

80

90

100

1950 1955 1960 1965 1970 1975 1980 1985 1990 1995 2000 2005

0

10

20

30

40

50

60

70

80

90

100

Official Holdings of Treasury Debt (% of Total Foreign Holdings)

Source: Federal Reserve Board, Haver Analytics.

n Foreign private and official holdings have increased at 

about the same pace in the past two decades

n Both private and central bank demand reflect the “special” 

role of the dollar in the international financial system and 

increased global integration

n Treasuries play a special role for central banks

n Foreign private and official holdings have increased at 

about the same pace in the past two decades

n Both private and central bank demand reflect the “special” 

role of the dollar in the international financial system and 

increased global integration

n Treasuries play a special role for central banks
Foreign Private Investors are Similar 

to Domestic Investors

0

5

10

15

20

25

30

75 85 95 05

0

5

10

15

20

25

30

Treasuries

Agency Securities

Corporate Bonds

0

5

10

15

20

25

30

75 85 95 05

0

5

10

15

20

25

30

Treasuries

Agency Securities

Corporate Bonds

Source: Federal Reserve Board, Haver Analytics.

n The dollar still plays a unique role in the global financial system

n Non-official foreigners hold 7 times as much US marketable 

securities as private US entities hold of foreign securities

– Reflects increased global integration, growth of financial 

markets, and “special” role of dollar in global financial system

– Current account deficits have “accommodated” the 

asymmetry

n Private foreigners buy the full range of US securities: Treasuries are 

not “special”

n The dollar still plays a unique role in the global financial system

n Non-official foreigners hold 7 times as much US marketable 

securities as private US entities hold of foreign securities

– Reflects increased global integration, growth of financial 

markets, and “special” role of dollar in global financial system

– Current account deficits have “accommodated” the 

asymmetry

n Private foreigners buy the full range of US securities: Treasuries are 

not “special”

Private Foreign Share of Ownership

0

1

2

3

4

5

6

7

8

50 60 70 80 90 00

0

1

2

3

4

5

6

7

8

0

1

2

3

4

5

6

7

8

50 60 70 80 90 00

0

1

2

3

4

5

6

7

8

Ratio of Foreign-Held US Securities

To US-Held Foreign Securities
The Dollar is Still the Key Reserve 

Currency

64

66

68

70

72

74

76

78

80

1996 1998 2000 2002

64

66

68

70

72

74

76

78

80

Dollar Assets as a % of Central

Bank Reserves

64

66

68

70

72

74

76

78

80

1996 1998 2000 2002

64

66

68

70

72

74

76

78

80

Dollar Assets as a % of Central

Bank Reserves

Source: Federal Reserve Board, Haver Analytics

n The dollar remains the key reserve currency

n Roughly 70% of global FX reserves are held in dollars

– The late 1990s rise and early 2000s fall was due entirely to 

revaluation effects due to the dollar’s rise and fall

n In no year have foreign central banks been net sellers of dollar

reserves

– Most recent data is for 2003, which saw particularly strong 

dollar buying

– Big increases in custody holdings of Treasuries at the Fed 

strongly suggest that the pattern was sustained in 2004

n The dollar remains the key reserve currency

n Roughly 70% of global FX reserves are held in dollars

– The late 1990s rise and early 2000s fall was due entirely to 

revaluation effects due to the dollar’s rise and fall

n In no year have foreign central banks been net sellers of dollar

reserves

– Most recent data is for 2003, which saw particularly strong 

dollar buying

– Big increases in custody holdings of Treasuries at the Fed 

strongly suggest that the pattern was sustained in 2004

-50

50

150

250

350

450

550

1993 1996 1999 2002

Dollar Reserve Additions

Non-Dollar Reserve Additions

-50

50

150

250

350

450

550

1993 1996 1999 2002

Dollar Reserve Additions

Non-Dollar Reserve Additions
Private and Official Buying Have 

Both Been Strong

Source: Federal Reserve Board, Haver Analytics.

n Private and official buying tended to offset in the 1980s

– When private buying dried up in late 1980s, official 

buying increased

n Since 1990, they have tended to move together and have 

been only imperfectly correlated with dollar moves

– Heavy Treasury buying as the dollar stabilized and 

began to strengthen 1995-1998

– Strong buying as dollar fell 2002-2004

n Private and official buying tended to offset in the 1980s

– When private buying dried up in late 1980s, official 

buying increased

n Since 1990, they have tended to move together and have 

been only imperfectly correlated with dollar moves

– Heavy Treasury buying as the dollar stabilized and 

began to strengthen 1995-1998

– Strong buying as dollar fell 2002-2004

-40

-20

0

20

40

60

80

100

1980 1985 1990 1995 2000 2005

60

70

80

90

100

110

120

130

140

150

Official (Lt Axis, Y/Y % Chg in Outstandings)

Private (Lt Axis, Y/Y % Chg in Outstandings)

Trade-Weighted USD Index (Rt Axis)
Foreign Treasury Holdings in the 

Context of the US as a Net Debtor

n Sustained current account deficits have pushed the 

US into a growing net debtor position

– Deterioration has come entirely through 

increased foreign ownership of fixed income 

securities

n Treasuries are now under a quarter of foreign-held 

fixed income assets

n Sustained current account deficits have pushed the 

US into a growing net debtor position

– Deterioration has come entirely through 

increased foreign ownership of fixed income 

securities

n Treasuries are now under a quarter of foreign-held 

fixed income assets

-35%

-30%

-25%

-20%

-15%

-10%

-5%

0%

5%

10%

80 85 90 95 00

-35%

-30%

-25%

-20%

-15%

-10%

-5%

0%

5%

10%

Fixed Income Equity & FDI

-35%

-30%

-25%

-20%

-15%

-10%

-5%

0%

5%

10%

80 85 90 95 00

-35%

-30%

-25%

-20%

-15%

-10%

-5%

0%

5%

10%

Fixed Income Equity & FDI 20%

22%

24%

26%

28%

30%

32%

34%

80 84 88 92 96 00 04

20%

22%

24%

26%

28%

30%

32%

34%

20%

22%

24%

26%

28%

30%

32%

34%

80 84 88 92 96 00 04

20%

22%

24%

26%

28%

30%

32%

34%

Net US External Financial Position

(By Type, % of GDP)

Treasuries as a % of Gross Foreign-Held

US Fixed Income Assets
Foreign Official Holdings in the 

Context of Market Liquidity

15

20

25

30

35

40

1989 1994 1999 2004

50

55

60

65

70

75

80

As % of GDP (Lt Axis) As % of Total Treasury Debt Outstanding (Rt Axis)

15

20

25

30

35

40

1989 1994 1999 2004

50

55

60

65

70

75

80

As % of GDP (Lt Axis) As % of Total Treasury Debt Outstanding (Rt Axis)

Source: Federal Reserve Board, Haver Analytics.

n Budget deficits are boosting supply and easing earlier 

liquidity concerns caused by prospective budget surpluses

n But supply available for lending has lagged

n Foreign holdings per se are not a problem, but official 

holdings may not be as generally available for lending and 

can represent large percentages of individual issues

n Engagement by US officials with their foreign counterparts 

to encourage lending of their securities could alleviate 

potential shortages

n Budget deficits are boosting supply and easing earlier 

liquidity concerns caused by prospective budget surpluses

n But supply available for lending has lagged

n Foreign holdings per se are not a problem, but official 

holdings may not be as generally available for lending and 

can represent large percentages of individual issues

n Engagement by US officials with their foreign counterparts 

to encourage lending of their securities could alleviate 

potential shortages

Treasury Debt Outstanding, Excluding Debt Held by Official Sector and 

State and Local Governments
Are There Risks to Future Treasury 

Financing?

n Heavy foreign buying has squeezed domestic buyers out of 

the Treasury market, and they could readily be brought 

back in.

– Domestics now own $750bn fewer Treasuries than in 

1995.

– If foreign buying stopped or went into reverse, 

domestic ownership could be increased sharply and 

quickly given US market liquidity

n The US Treasury is in a particularly strong funding position 

relative to other countries:

– The US has less debt outstanding:

– ...and a broader, fully global investor base

– A diverse investor base is a more stable investor base

– Domestics have much smaller exposure to government 

debt than in other countries

n Foreign ownership does not present a risk to Treasury 

funding

n Heavy foreign buying has squeezed domestic buyers out of 

the Treasury market, and they could readily be brought 

back in.

– Domestics now own $750bn fewer Treasuries than in 

1995.

– If foreign buying stopped or went into reverse, 

domestic ownership could be increased sharply and 

quickly given US market liquidity

n The US Treasury is in a particularly strong funding position 

relative to other countries:

– The US has less debt outstanding:

– ...and a broader, fully global investor base

– A diverse investor base is a more stable investor base

– Domestics have much smaller exposure to government 

debt than in other countries

n Foreign ownership does not present a risk to Treasury 

funding

Japan 79%

Euro Area 52%

United States 43%

Net Government Financial Liabilities (% of GDP)

Source: OECD
Are There Broader Risks to the US 

Economy?

n Treasury ownership by itself does not present a risk, 

but the “special” role of the dollar in private and 

official dealings has meant that:

– The dollar has been stronger

– The trade balance has been weaker

– Econometric evidence suggests that recent heavy 

central bank buying has helped keep interest 

rates low

n If the dollar’s role were to fade, interest rates would 

be pushed up and the dollar down

– Central banks would diversify reserve currencies 

away from dollars

– US investors would increase exposure to foreign 

securities

n A decline in the role of the dollar, were it to occur, 

would likely be gradual...

– Central banks are very conservative by nature

– The institutional structure of global trade 

payment system would change gradually

n ...and thus does not present a risk of a sharp or 

destabilizing financial market event

n Treasury ownership by itself does not present a risk, 

but the “special” role of the dollar in private and 

official dealings has meant that:

– The dollar has been stronger

– The trade balance has been weaker

– Econometric evidence suggests that recent heavy 

central bank buying has helped keep interest 

rates low

n If the dollar’s role were to fade, interest rates would 

be pushed up and the dollar down

– Central banks would diversify reserve currencies 

away from dollars

– US investors would increase exposure to foreign 

securities

n A decline in the role of the dollar, were it to occur, 

would likely be gradual...

– Central banks are very conservative by nature

– The institutional structure of global trade 

payment system would change gradually

n ...and thus does not present a risk of a sharp or 

destabilizing financial market event