Higher real rates and a more interventionist Treasury have absorbed most of this year’s attention on US debt management. But a third development has drawn less comment and may matter more. Who is buying all this debt?
That is the question behind every auction, quarterly refunding and monthly Treasury International Capital release. The usual answer is a country-by-country score: China sold, Japan held, the Saudis trimmed. But a focus on country holdings was only ever a proxy for the one that matters, the split between holders who buy for policy and holders who buy for return. It stopped being a good proxy a decade ago. America’s marginal creditor is now domestic private leverage that reports as a cross-border flow.
Private holders now own the larger share
Foreign investors held $9.3tn of US Treasury securities in June 2026. Foreign official institutions once dominated that base, holding roughly two-thirds of it in 2014. Private holders moved ahead in 2023 and the gap has widened since, with foreign institutions today holding 41%. However, read that as a retreat of the foreign official sector, political or otherwise, and you have it wrong. Official holdings are only about 8% below their 2014 dollar level. What changed is the market around them, which grew from $12.5tn to roughly $30tn.
Additionally, reserve building significantly abated. Accumulation surged through 2014, led by China, whose reserves then fell by $1tn. No one has taken China’s place. Sanctions and fragmentation matter at the margin, no more. Research by the Brookings Institution lands in the same place.
Foreign demand with a domestic owner
Who bought instead is not something the country tables can tell you. TIC reports the jurisdiction of custody, not the residence of the ultimate owner. Cayman Islands holdings reached $453bn in June, up 67% since the start of 2022, making Cayman the sixth largest reported foreign holder. That is not offshore savings. It is mostly the US hedge fund community running cash-futures basis trades through Cayman-domiciled vehicles. The managers file Form PF with the Securities and Exchange Commission. The domicile is a legal and tax convenience; the capital and the risk decisions sit onshore.
The reported number also understates the position. Treasuries pledged as repurchase agreement collateral should be reported as if the original owner still held them, but custodians lose the thread once collateral moves and the positions drop out. Federal Reserve staff, working from Form PF filings, put Cayman-domiciled hedge funds’ Treasury holdings near $1.9tn at the end of 2024, roughly $1.4tn above what the data captured. Adjust for that and Cayman becomes the largest foreign holder, ahead of Japan and China.
The flows say the same. Between January 2022 and December 2024 these funds absorbed 37% of net issuance of notes and bonds, nearly as much as all other foreign investors combined. The Office of Financial Research puts hedge fund cash Treasury holdings at $2tn at the end of 2025, a record 7% of the market.
The dealer bid left too
Losing the foreign official buyer that held through a selloff would matter less if the market had kept its shock absorber. It has not. Between 2003 and 2008, primary dealers were awarded 70% of new Treasury issuance. Their share now runs closer to 11%, and single auctions have cleared under 8%. Some of that is plumbing, as direct and indirect bidders gained their own auction access. The rest is real.
Nor are dealers warehousing much of the rest. Fed staff estimate that each additional dollar of supply draws about four and a half cents onto dealer books, plus seven cents of client financing. Both are above the historical average, so this is capacity rather than willingness – 95 cents of every new dollar has to find a home elsewhere.
The constraint is partly regulatory: the leverage ratio counts a Treasury against capital like a risk asset. Regulators eased the enhanced supplementary leverage ratio in April 2026 for that reason; the lowest dealer auction award on record came after it took effect. The shock absorber has not grown with the car.
The marginal buyer sets the terms
The marginal buyer is no longer the reserve manager. It is a fund that buys the bond because it is slightly cheap to the futures contract and borrows nearly the whole purchase price to do it. Its horizon is the term of a repo loan. This is also a buyer that is not taking the risk people assume a bondholder takes. Holding a long Treasury means carrying the risk that rates rise and the bond falls in value. The basis fund hedges that away in futures, so it lands with asset managers on the other side. Someone always carries it. The official sector did, and barely charged for it. Whoever carries it now can put the money elsewhere, and price it. Expect a higher-term premium than pre-2020 experience suggests, a cost that sits on top of the term premium that is driven by the fiscal path.
Volatility is the bigger problem. Leveraged holders sell into weakness because their lenders make them. Prices fall, haircuts rise, margin is called, positions are cut. Demand turns procyclical exactly when it should not. Recent bouts of volatility have seen Treasuries trade more like a risk asset than a risk-free one. On this buyer base, that should be the expectation rather than the surprise.
Does any of this change what the Treasury should do? No. The mandate is right: lowest cost of financing over time, through regular and predictable issuance. Buyer composition is an input to demand analysis. Treasury does not choose its investors. That restraint is why the auction calendar is believed.
What should change is the rest of us. Demand elasticities estimated on a buyer base that was two-thirds official, clearing through dealers, will understate how far yields move when supply rises or risk appetite turns. Forecasters, risk managers and debt sustainability analysts are working from a map of a market that no longer exists.
The credit has not changed. The creditors have, and they are borrowing the money they lend. The next time the long end gaps and the bid evaporates, no one should act surprised.
Jamie Franco was formerly head of cross-asset research and sustainable investment for TCW. She spent a decade in public service at the US Treasury and the International Monetary Fund, including work on Treasury debt management policy.
Interested in this topic? Subscribe to OMFIF’s newsletter for more.