If the U.S. Treasury were to default, who would be left holding the bag?
Foreign investors and governments hold about $4.4 trillion in Treasury securities, slightly less than half of the U.S. government’s publicly held debt. China is by far the biggest of those foreign creditors, with nearly $1.2 trillion in Treasury holdings, and that was an increase of almost 30 percent from a year earlier.
The Chinese increase, along with smaller increases in the holdings of many other countries, shows the United States’s much-publicized budget woes haven’t yet diminished the foreign appetite for American government debt. In part, that’s because countries with huge trade surpluses don’t have enough other safe places to park their excess reserves.
In fact, the U.S. government was still able to finance its additional borrowing at exceptionally low interest rates. The battle in Congress over raising the debt ceiling could change that. Thus far, investors are still assuming that Congress will raise the government’s legal borrowing limit before it faces a likely default on its existing debt in early August. But as the deadline draws near, a continued impasse could start to frighten the markets and send rates soaring.
*Includes Ecuador, Venezuela, Indonesia, Bahrain, Iran, Iraq, Kuwait, Oman, Qatar, Saudi Arabia, the United Arab Emirates, Algeria, Gabon, Libya, and Nigeria.
**Includes the Bahamas, Bermuda, the Cayman Islands, the Netherlands Antilles, Panama, and the British Virgin Islands.
SOURCES: Treasury Department; Federal Reserve Board