The U.S. net international investment position exceeded negative 71% of GDP at the end of 2025, four times higher than in 2010. While persistent U.S. current account deficits have contributed to this trend, much of the decline reflects the extraordinary rise in U.S. equity prices, which dramatically increased the value of U.S. stocks owned by foreign investors. At the same time, a stronger dollar has reduced the dollar value of U.S.-owned foreign assets denominated in foreign currency. These valuation effects account for much of the worsening in America’s net external position.
Although equity valuations explain much of the deterioration in the net international investment position, foreign purchases of U.S. debt securities—particularly U.S. Treasury securities—have been the most significant means of financing U.S. current account deficits. As federal debt continues to rise and interest rates remain well above the exceptionally low levels of the 2010s, understanding who buys Treasury securities, and why, becomes increasingly important.
Who are U.S. creditors? While the U.S. bilateral position with China has not changed much relative to 2017, liabilities to advanced economies in Asia and Europe have risen sharply, reflecting these economies’ large current account surpluses—but also because their large U.S. portfolio equity positions have appreciated as stock prices have risen. In contrast, most emerging markets, including China, hold primarily U.S. bonds, whose market value has declined as interest rates have risen. Furthermore, China has been diversifying its allocation of external assets since the end of the Global Financial Crisis, reducing its relative exposure to the U.S. while increasing claims elsewhere. Importantly, the growing share of investment intermediated by financial centers has increased uncertainty about the identity of ultimate U.S. creditors.
Conventional balance-of-payments statistics record foreign holdings according to the residence of the immediate investor rather than who ultimately owns them. As a result, financial centers hosting a prominent investment fund industry such as the Cayman Islands, Ireland, and Luxembourg appear to hold enormous quantities of U.S. assets even though these investments ultimately belong to fund shareholders from other countries. The picture is further blurred by the fact that when U.S. securities are held abroad, U.S. statisticians can only establish the location of the entity that holds them in custody, but this can be on behalf of a resident of a different country. This is the case for Belgium, which hosts Euroclear, a very large custodian, and the United Kingdom, where an important share of international investors’ portfolios are managed. The paper provides estimates that seek to identify the nationality of ultimate investors rather than simply the location of financial intermediaries, but can only do so for part of foreign holdings of U.S. securities.
The composition of foreign owners of Treasury securities has changed dramatically since the Global Financial Crisis. In the 2000s, foreign official institutions—especially central banks accumulating dollar reserves—accounted for most foreign purchases. Over the past decade, however, their importance has declined sharply. Today, foreign private investors hold substantially more Treasuries than foreign official institutions. After correcting for previously undercounted hedge fund holdings routed through the Cayman Islands, the shift toward private investors is even larger than official statistics suggest.
Official demand for U.S. Treasuries has weakened for three reasons. First, the rapid accumulation of foreign exchange reserves that characterized the 2000s has slowed considerably. Second, large purchases of Treasury securities by the Federal Reserve reduced the supply available to other investors. Third, appreciation of the U.S. dollar encouraged central banks to rebalance their reserve portfolios to maintain relatively stable currency shares. In addition, geopolitical fragmentation is associated with lower official demand for Treasury securities, suggesting that strategic considerations are increasingly influencing reserve management decisions.
Private investors behave differently than official investors. Unlike central banks, they continue to increase Treasury holdings during periods of heightened financial stress, reflecting the enduring safe-haven status of U.S. government securities. The paper offers evidence that declining home bias—the growing willingness of investors to hold foreign bonds—has supported private demand for Treasuries. However, the growing importance of hedge funds and other leveraged investors raises new concerns. Such investors can rapidly unwind positions during periods of market stress, as occurred during the Treasury market disruptions of March 2020. Moreover, because many investments pass through offshore financial centers, policymakers have increasingly limited visibility into who ultimately holds U.S. debt.
Official demand is unlikely to recover substantially without renewed reserve accumulation or a significant depreciation of the dollar. Private investors have stepped in to fill much of the gap, but their behavior is inherently more heterogeneous and potentially more volatile. As geopolitical fragmentation increases and financial intermediation becomes more opaque, understanding the identity and motivations of America’s creditors will become increasingly important for assessing the resilience of the U.S. financial system.
Rising foreign ownership of U.S. equities is not, by itself, a major source of financial risk because most U.S. equities remain domestically owned, and foreign ownership provides a degree of international risk sharing when stock prices fluctuate. By contrast, growing external debt creates more serious vulnerabilities because higher interest rates increase debt-service costs for both the federal government and the country’s external accounts. If foreign official demand continues to weaken while private investors become more sensitive to geopolitical developments or fiscal concerns, Treasury yields could become more volatile and less likely to decline during periods of economic stress.
Authors
Related Content
The Brookings Institution is committed to quality, independence, and impact.
We are supported by a diverse array of funders. In line with our values and policies, each Brookings publication represents the sole views of its author(s).
