Barclays' annual Equity Gilt Study focuses heavily on US Treasury bonds, anticipating a 'Treasury tsunami' that could impact global financial markets. Historically, the Treasury market has been supported by large, price-insensitive buyers, including the Federal Reserve and foreign central banks. However, this dynamic is changing.
The shift from quantitative easing (QE) to quantitative tightening (QT) by the Federal Reserve, along with a decrease in purchases from foreign central banks, signals a significant change in the demand landscape for US Treasuries. This rebalancing means that the market will increasingly rely on a more heterogeneous and market-sensitive private investor base.
Foreign official investors, primarily central banks holding Treasuries as part of their foreign exchange reserves, previously dominated foreign ownership, especially around the 2007–09 Global Financial Crisis. China and Japan were key players, but their share has declined. As of mid-2025, foreign private investors held about $7 trillion in US Treasuries, surpassing the $3.9 trillion held by foreign official institutions. This growing reliance on private investors, including highly leveraged players like hedge funds, introduces more sensitivity to risk sentiment and geopolitical tensions, making US borrowing costs and financial stability more exposed to global sentiment swings.
Total US debt is nearing $36 trillion. The US Treasury expects to borrow more than $10 billion net every business day from July through December 2026, with a substantial portion from foreign sources. While overall foreign holdings in dollar terms have grown, and private demand has offset the decline in official demand, the changing character of the foreign investor base raises concerns about potential rapid sales and systemic stress, as witnessed in March 2020. The stability of US Treasury financing is now more dependent on US fiscal policy, geopolitical shocks, and evolving global portfolio preferences.
