Foreign Holdings of Federal Debt
Marc Labonte
Specialist in Macroeconomic Policy
Jared Conrad Nagel
Information Research Specialist
June 24, 2013
Congressional Research Service
7-5700
www.crs.gov
RS22331
CRS Report for Congress
Pr
epared for Members and Committees of Congress
Foreign Holdings of Federal Debt
Summary
This report presents current data on estimated ownership of U.S. Treasury securities and major
holders of federal debt by country. Federal debt represents the accumulated balance of borrowing
by the federal government. To finance federal borrowing, U.S. Treasury securities are sold to
investors. Treasury securities may be purchased directly from the Treasury or on the secondary
market by individual private investors, financial institutions in the United States or overseas, and
foreign, state, or local governments. Foreign investment in federal debt has grown in recent years,
prompting questions on the location of the foreign holders and how much debt they hold.
This report will be updated annually or as events warrant.
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Foreign Holdings of Federal Debt
Contents
Selected Statistics on Foreign Holdings of Federal Debt ................................................................ 1
Foreign Investment in U.S. Federal Debt: Why Is It an Issue of Concern? ..................................... 4
Figures
Figure 1. Breakdown of Official vs. Private Foreign Holdings of U.S. Federal Debt ..................... 3
Tables
Table 1. Estimated Ownership of U.S. Treasury Securities ............................................................. 1
Table 2. The Top 10 Foreign Holders of Federal Debt, by Country ................................................ 2
Contacts
Author Contact Information............................................................................................................. 7
Acknowledgments ........................................................................................................................... 7
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Foreign Holdings of Federal Debt
Selected Statistics on Foreign Holdings of
Federal Debt
Federal debt represents, in large measure, the accumulated balance of federal borrowing of the
U.S. government. The portion of gross federal debt held by the public consists primarily of
investment in U.S. Treasury securities.1 Investors in the United States and abroad include official
institutions, such as the U.S. Federal Reserve; financial institutions, such as private banks; and
private individual investors.
Table 1 provides December 2012 data, available as of June 2013, on estimated ownership of U.S.
Treasury securities by type of investment and the percentage of that investment attributable to
foreign investors.2
As the table shows, during the five years from December 2008 to December 2012, foreign
holdings of debt increased by $2.5 trillion to approximately $5.6 trillion. During the same period,
total privately held debt increased by approximately $4 trillion to $9.9 trillion.3
In December 2008, total foreign investment in U.S. federal debt was approximately $3.1 trillion
(52.2%) of the total of approximately $5.9 trillion in privately held debt. By December 2012, total
foreign investment in U.S. federal debt had grown by 4 percentage points to approximately
$5.6 trillion (56.2%) of the total of approximately $9.9 trillion in debt held by private investors.4
The 56.2 percentage share in December 2012 represents the largest share of privately held public
debt attributed to foreign holdings since these estimates have been compiled.
Table 1. Estimated Ownership of U.S. Treasury Securities
(in billions of dollars)
Foreign Holdings as a
End of
Total Public Debt Held
Total Debt Held by
Share of Total Privately
Month
by All Private Investors
Foreign Investors
Held Public Debt
Dec. 2012
$9,909.1
$5,573.8
56.2%
Dec. 2011
$8,783.3
$5,006.9
57.0%
Dec. 2010
$8,368.9
$4,435.6
53.0%
1 Figures on federal debt held by the public are available on the Department of Treasury Bureau of Public Debt website,
“The Debt to the Penny and Who Holds It,” at http://www.treasurydirect.gov/NP/BPDLogin?application=np.
2 This report discusses foreign holdings of U.S. federal debt. Foreign investors also hold U.S. private securities. For
data on foreign holdings of U.S. private securities, see “Foreign Portfolio Holdings of U.S. Securities,” at
http://www.treasury.gov/resource-center/data-chart-center/tic/Pages/fpis.aspx, produced by the Treasury Department
International Capital System.
3 The publicly held federal debt includes Federal Reserve holdings. The privately held federal debt excludes them.
4 Data are excerpted from Table OFS-2 in the June 2013 Treasury Bulletin. Table OFS-2 presents the estimated
ownership of U.S. Treasury securities. Information is primarily obtained from the Federal Reserve Board of Governors
Flow of Funds data, Table L209. State, local, and foreign holdings include special issues of nonmarketable securities to
municipal entities and foreign official accounts. They also include municipal, foreign official, and private holdings of
marketable Treasury securities.
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Foreign Holdings of Federal Debt
Foreign Holdings as a
End of
Total Public Debt Held
Total Debt Held by
Share of Total Privately
Month
by All Private Investors
Foreign Investors
Held Public Debt
Dec. 2009
$7,034.4
$3,685.1
52.4%
Dec. 2008
$5.893.4
$3,077.2
52.2%
Source: Table OFS-2: Estimated Ownership of U.S. Treasury Securities from the June 2012 Treasury Bulletin. See
link for “Ownership of Federal Securities” tables at http://www.fms.treas.gov/bul etin/index.html.
Notes: Table data represent estimated figures current as of June 13, 2013. For the most current data, connect
to the link listed above. Percentage shares calculated by CRS.
Although gross federal debt is the broadest measure of the debt, it may not be the most important one. The
debt measure that is relevant in an economic sense is debt held by the public. This is the measure of debt that
has actually been sold in credit markets and has influenced interest rates and private investment decisions. This
table reflects that portion of public debt held by al private investors in federal securities and the portion of that
debt held by foreign investors. See CRS Report RL31590, The Federal Government Debt: Its Size and Economic
Significance, by Brian W. Cashell.
Data on major foreign holders of federal debt by country are provided in Table 2. According to
the data, the top three estimated foreign holders of federal debt by country, ranked in descending
order as of December 2012, are China ($1,220.4 billion), Japan ($1,111.2 billion), and Caribbean
Banking Centers ($266.2 billion). Based on these estimates, China holds approximately 21.9% of
all foreign investment in U.S. privately held federal debt; Japan holds approximately 19.9%; and
Caribbean Banking Centers hold approximately 4.7%.5
Table 2. The Top 10 Foreign Holders of Federal Debt, by Country
(data current as of June 13, 2013)
As of December 2012
As of December 2008
Percentage of all
Percentage of all
Country
Amount Held foreign holdings
Country
Amount Held foreign holdings
($ billions)
in federal debt
($ billions)
in federal debt
Mainland China
$1,220.4
21.9%
Mainland China
$727.4
23.6%
Japan $1111.2
19.9%
Japan $626.0
20.3%
Caribbean Banking
$266.2 4.7%
Caribbean
Banking
$197.9
6.4%
Centers
Centers
Oil Exporters
$262.0
4.7%
Oil Exporters
$186.2
6.0%
Brazil $253.3
4.5%
United
Kingdom
$131.1
4.2%
Taiwan $195.4
3.5%
Brazil $127.0
4.1%
Switzerland $195.4
3.5%
Russia
$116.4
3.8%
Russia $161.5
2.9%
Luxembourg
$97.3
3.1%
Luxembourg $155.0 2.8%
Hong
Kong $77.2 2.5%
Hong Kong
$141.9
2.5%
Taiwan
$71.8
2.3%
5 Foreign holdings are estimated by the Treasury Department based on the location of the holdings, not the nationality
of the holder. For certain countries, such as the Caribbean Banking Centers, many of the holdings are likely owned by
third country citizens.
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Foreign Holdings of Federal Debt
As of December 2012
As of December 2008
Amount Held Percentage of all
Amount Held Percentage of all
Country
($ billions) foreign holdings
Country
($ billions) foreign holdings
in federal debt
in federal debt
Total Top 10
Total Top 10
Countries of
Countries of
Foreign Investors
$3962.3 70.9%
Foreign Investors in
$2,358.3 76.6%
in Federal Debt
Federal Debt
Total All Foreign
Total All Foreign
Investment in
$5,573.8 100%
Investment in
$3,077.2 100%
Federal Debt
Federal Debt
Source: Treasury Department International Capital System (TIC), at http://www.treasury.gov/resource-center/
data-chart-center/tic/Documents/mfhhis01.txt.
Notes: Data, including estimated foreign holders of federal debt historically by month, in these Treasury
Department tables are periodically adjusted. Current monthly estimates are available at http://www.treas.gov/tic/
mfh.txt. Aggregate data totals in Table 1 vary slightly from aggregate data totals in Table 2 because of minor
valuation differences of a few securities in the data used by the TIC. Percentage approximations calculated by
CRS. Percentages may not sum to 100% due to rounding.
Foreign holdings as estimated by the Treasury Department can be divided into official
(governmental investment) and private sources. Figure 1 provides data on the current breakdown
of estimated foreign holdings in U.S. federal debt. As the figure shows, 72.3% ($4,032.2 billion)
of foreign holdings in U.S. federal debt are held by governmental sources. Private investors hold
the other 27.7% ($1,541.6 billion).
Figure 1. Breakdown of Official vs. Private Foreign Holdings of U.S. Federal Debt
Source: Treasury Department International Capital System, http://www.treasury.gov/resource-center/data-
chart-center/tic/Documents/mfhhis01.txt.
Notes: Data in the chart represent estimated December 2012 figures and are current as of June 1, 2013. Figures
are in billions of dollars. Data in the Treasury Department tables are periodically adjusted. For the most current
estimates, click on the URL address listed above.
The estimated combined total of all foreign holdings for December 2011 was $4,996.4 billion. Data consist of
reported December 2011 figures from the TIC http://www.treas.gov/tic/mfh.txt. The breakdown between
estimated official and private holdings is not publicly available on a country-by-country basis. Approximate
percentages calculated by CRS.
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Foreign Holdings of Federal Debt
Foreign Investment in U.S. Federal Debt: Why Is It
an Issue of Concern?
From an economic perspective, foreign holdings of federal debt can be viewed in the broader
context of U.S. saving, investment, and borrowing from abroad. For decades, the United States
has saved less than it invests. Domestic saving is composed of saving by U.S. households,
businesses, and governments; by accounting identity,6 when government runs budget deficits, it
reduces domestic saving. By the same accounting identity, the shortfall between U.S. saving and
physical investment is met by borrowing from abroad. When the deficit rises (i.e., public saving
falls), U.S. investment must fall (referred to as the deficit “crowding out” investment) or
borrowing from abroad must rise. If capital were fully mobile and unlimited, a larger deficit
would be fully matched by greater borrowing from abroad, and there would be no crowding out
of domestic investment. To be a net borrower from abroad, the United States must run a trade
deficit (it must buy more imports from foreigners than it sells in exports to foreigners). Since
2000, U.S. borrowing from abroad and the trade deficit each have exceeded $300 billion each
year. Borrowing from abroad peaked at $800 billion in 2006 and was $440 billion in 2012.
Borrowing from abroad has occurred through foreign purchases of both U.S. government and
U.S. private securities and other assets.
As a result of foreign purchases of Treasury securities, the federal government must send U.S.
income abroad to foreigners. If the overall economy is larger as a result of federal borrowing
(because the borrowing stimulated economic recovery7 or was used to productively add to the
U.S. capital stock, for example), then this outcome may leave the United States better off overall
on net despite the transfer of income abroad. In other words, without foreign borrowing, U.S.
income would be lower than it currently is net of foreign interest payments in this scenario. Since
2008, the output gap (the difference between actual gross domestic product [GDP] and potential
GDP) has been large, making the potential for government budget deficits to stimulate the
economy, putting idle capital and labor resources back to work, and increase total income greater
than usual. Because the federal government has run deficits almost every year since the 1960s,
the mainstream economic view is that these budget deficits have not led to a larger economy on
net over the long run for two reasons. First, the government has run deficits in many years when
the economy was near or at full employment, precluding the role of deficit stimulus. Second,
federal spending on capital is small8 relative to the overall budget.
It can be argued that the underlying long-term economic problem is the budget deficit itself, and
not that the deficit is financed in part by foreigners. This can be illustrated by the
counterfactual—assume the same budget deficits and U.S. saving rates without the possibility of
foreign borrowing. In this case, budget deficits would have had a much greater “crowding out”
effect on U.S. private investment, because only domestic saving would have been available to
finance both. The pressures the deficit has placed on domestic saving would have pushed up
6 The accounting identity is (household saving + business saving + government saving) + (borrowing from abroad –
lending to abroad) = (public investment + private investment).
7 For a discussion of how government deficits can stimulate the economy, see CRS Report R41578, Unemployment:
Issues in the 113th Congress, by Jane G. Gravelle, Thomas L. Hungerford, and Linda Levine.
8 In 2012, non-defense capital investment was an estimated $52 billion and grants for capital investment were an
estimated $96 billion. Source: Office of Management and Budget, FY 2013 Budget of the United States Government,
Historical Tables, February 2012, Table 9.2.
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interest rates throughout the economy and caused fewer private investment projects to be
profitably undertaken. With fewer private investment projects, overall GDP would have been
lower over time relative to what it would have been. The ability to borrow from foreigners avoids
the deleterious effects on U.S. interest rates, private investment, and GDP, to an extent, even if it
means that the returns on some of this investment now flow to foreigners instead of Americans. In
other words, all else equal, foreign purchases of Treasury securities reduce the federal
government’s borrowing costs and reduce the costs the deficit imposes on the broader economy.
The burden of a foreign-financed deficit is borne by exporters and import-competing businesses,
because borrowing from abroad necessitates a trade deficit. It is also borne by future generations,
because future interest payments will require income transfers to foreigners.9 To the extent that
the deficit crowds out private investment rather than is financed through foreign borrowing, its
burden is also borne by future generations through an otherwise smaller GDP. Because interest
rates are at historically low levels, this burden is currently not large given the increase in
borrowing. Were rates to rise, however, the burden would rise with some lag as new borrowing
was made at the new higher rates and old borrowing matured and “rolled over” into new debt
instruments with higher rates.10
Thus far, this report has considered the U.S. determinants of the market for U.S. Treasury
securities, namely the government’s budget deficit and the low U.S. saving rate, but not investor
demand. Since interest rates are falling to historic lows at a time when the supply of Treasury
securities has risen to historic heights, it follows that Treasury rates have been driven mainly by
increased investor demand in recent years. In the wake of the 2008 financial crisis, investor
demand for Treasury securities increased as investors undertook a “flight to safety.” Treasury
securities are perceived as a “safe haven” compared with other assets because of low perceived
default risk and greater liquidity (i.e., the ability to sell quickly and at low cost) than virtually any
alternative asset. For foreign investors, their behavior also implies that they view the risk from
exchange rate changes of holding dollar-denominated assets to be lower than alternative assets
denominated in other currencies. The reasons for this flight to safety are varied. For example,
investors who had previously held more risky assets may now be more averse to risk and are
seeking to minimize their loss exposure; investors may not currently see profitable private
investment opportunities and are holding their wealth in Treasury securities as a “store of value”
until those opportunities arise; or investors may now need Treasury securities to post as collateral
for certain types of transactions (such as repurchase agreements) where previously other types of
collateral could be used (or used at low cost). Flight-to-safety considerations are likely to subside
if economic conditions continue to normalize, reducing the incentive for foreigners to buy
Treasuries and raising their yields, all else equal. More normal economic conditions would also
be expected to increase domestic investment demand, which would either push up domestic
interest rates or lead to more foreign borrowing.
Finally, any discussion of foreign holdings of Treasuries would be incomplete without a
discussion of foreign governments (referred to as “foreign official holdings”).11 Foreign official
9 See CRS Report RL30520, The National Debt: Who Bears Its Burden?, by Marc Labonte. Income transfers to
domestic debt holders have no net cost on the United States because they transfer income from one group of Americans
(taxpayers) to another (bond holders).
10 The average maturity length of the outstanding debt is about five years.
11 U.S. Treasury, Major Foreign Holders of Treasury Securities, http://www.treasury.gov/resource-center/data-chart-
center/tic/Documents/mfh.txt.
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holdings are motivated primarily by a desire for a liquid and stable store of value for foreign
reserves; relatively few assets besides U.S. Treasury securities fill this role well. Depending on
the country, foreign reserves may be accumulated as a result of a country’s exchange rate policy,
the desire to reinvest export proceeds, or the desire to build a “war chest” to fend off speculation
against the country’s exchange rate and securities. If motivated by any of these factors, rate of
return may be a lesser consideration for foreign governments than it is for a private investor.
While the burden of financing the federal debt has been modest thus far, it does expose the United
States to the potential risk of future financial instability, although most economists would rate that
risk as low in the near term. The federal debt is currently on an economically unsustainable path,
meaning that it is projected to grow faster than GDP indefinitely. Were the debt to continue to
grow faster than GDP, the government would eventually no longer be able to meet interest
payments on the debt. At whatever point investors decided that this was the case, they would
become unwilling to continue holding Treasury securities, driving down their price and likely
prompting a financial crisis, given the size and importance of the Treasury market. This scenario
has played out repeatedly in foreign countries, such as recently in Greece.12 Because of the large
share of foreign investors, any future debt crisis would also presumably spark a currency crisis, as
foreigners would drive down the value of the dollar as they sold Treasury securities. The fact that
investors are willing to hold Treasury securities with low yields despite the current unsustainable
debt path implies that investors believe that policymakers will eventually restore fiscal
sustainability through spending cuts, tax increases, or a combination of both. Nevertheless,
investors’ belief about future policy could change at any time, therefore, as long as the federal
debt is on an unsustainable path, some risk of financial instability remains present. This risk is
considered small in the short run, but greater in the long run as long as fiscal policy remains on
the current path, because unsustainable policies cannot be sustained forever and there is no
guarantee that they will be changed in time.13 The “safe haven” role of Treasuries has led to
counterintuitive outcomes—lower Treasury yields in response to U.S. events with systemic risk
potential, such as the subprime mortgage crisis and the federal debt downgrade. These
counterintuitive outcomes make it even harder to accurately predict when the debt might become
unsustainable.
The unsustainability of the federal debt is linked to the unsustainability of the whole of U.S.
(private and public) borrowing from abroad.14 Similar to the debt, the growth in net foreign debt
cannot continuously grow faster than GDP, as it has generally done in recent decades. Since 1986,
the United States has had a net foreign debt, and that debt grew to 27% of GDP in 2011.
Unsustainable growth in the net foreign debt could also lead to foreigners at some point
reevaluating and reducing their U.S. asset holdings. If this happened suddenly, it could lead to
financial instability. This net foreign debt has not imposed any burden on Americans thus far,
however, because the United States has consistently earned more income on its foreign assets
than it has paid on its foreign debt, even though foreigners owned more U.S. assets than
Americans owned foreign assets. Although it is likely that the United States would begin to make
12 See Carmen Reinhart and Kenneth Rogoff, This Time is Different: A Panoramic View of Eight Centuries of
Financial Crises, April 2008, available at http://www.economics.harvard.edu/files/faculty/
51_This_Time_Is_Different.pdf.
13 For more information, see CRS Report R40770, The Sustainability of the Federal Budget Deficit: Market Confidence
and Economic Effects, by Marc Labonte.
14 This borrowing from abroad is not dominated by government borrowing. According to the Bureau of Economic
Analysis, U.S. Treasury securities comprised $3.7 trillion out of $25.2 trillion of total foreign holdings of U.S. assets.
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net debt payments to foreigners at some point if the net foreign debt were to continue to grow, it
has not been a cause for concern yet.
This analysis suggests that unsustainable federal borrowing and unsustainable foreign borrowing
both pose separate—albeit, small in the short run—risks to financial stability. A related concern is
whether combining those risks via the major role of foreigners in Treasury markets adds more
risk to financial stability. In other words, would financial stability be less at risk if the United
States borrowed the same amount from foreigners, but foreigners invested exclusively in private
securities instead of U.S. Treasury securities? Empirical evidence does not shed much light on
this question, although the fact that some foreign crisis countries, such as Ireland, had
accumulated mainly private, not government, debt might suggest that avoiding foreign ownership
of government debt is not a panacea. Although countries like Greece with large foreign holdings
of government debt have experienced financing problems, a large share of Italy’s large
government debt was held domestically, and it has nevertheless faced financing problems. The
major role of foreign governments as holders of U.S. Treasuries could reduce financial instability
if foreign governments are less motivated by rate of return concerns because that implies they
would be less likely to sell their holdings if prices started to fall. Finally, foreign official holdings
of U.S. debt may have foreign policy (as opposed to economic) implications that are beyond the
scope of this report.
What policy options exist if policymakers decided foreign ownership of federal debt was
undesirable? Economically, it is unlikely that foreigners could effectively be prevented from
buying Treasury securities. After Treasury securities are initially auctioned by Treasury, they are
traded on diffused and international secondary markets, and turnover is much higher on
secondary markets than initial auctions. A foreign ban on secondary markets would be hard to
enforce because secondary market activity could shift overseas, and even if it could be enforced,
the U.S. saving-investment imbalance would likely shift foreign investment into other U.S.
securities—perhaps even newly created financial products that allowed foreigners to indirectly
invest in Treasury securities. Thus, a ban would not address the underlying economic factors
driving foreign purchases. Economically, the only way government could reduce its reliance on
foreign borrowing is by raising the U.S. saving rate, which could be done most directly by
reducing budget deficits.
Author Contact Information
Marc Labonte
Jared Conrad Nagel
Specialist in Macroeconomic Policy
Information Research Specialist
mlabonte@crs.loc.gov, 7-0640
jnagel@crs.loc.gov, 7-2468
Acknowledgments
Previous versions of this report were coauthored by Justin Murray, information research specialist.
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