Physical Address
304 North Cardinal St.
Dorchester Center, MA 02124
Holders of U.S. debt have changed dramatically over the past decade, shifting more toward profit-driven private investors and away from less price-sensitive foreign governments.
That threatens to weaken the U.S. financial system at a time of market stress, according to Geng Ngarmboonanant, chief executive of JPMorgan and former deputy chief of staff to Treasury Secretary Janet Yellen.
Foreign governments accounted for more than 40% of Treasury holdings in the early 2010s, compared to just over 10% in the mid-1990s, he wrote in a statement. New York Times opinion article Friday. This bloc of reliable investors allowed the United States to borrow enormous sums at artificially low rates.
“Those easy times are over,” he warned. “Foreign governments now represent less than 15% of the overall Treasury market. »
Although they have not abandoned their Treasuries and still hold roughly the same amount as 15 years ago, foreign governments have not increased their purchases in line with the recent increase in U.S. debt, which now exceeds $38 trillion.
Private investors have stepped in to absorb the massive supply of Treasuries, but they are also more likely to demand higher yields, making rates more volatile, Ngarmboonanant pointed out.
The influence of hedge funds, which have doubled their presence in the Treasury market over the past four years, is causing particular concern among U.S. officials, he added. In fact, the largest share of U.S. debt held outside the country is now in the Cayman Islands, where many hedge funds are officially based.
Ngarmboonanant attributed the “unusual turbulence” during recent shocks in the Treasury market, which has historically been a safe haven in times of crisis, to hedge fund activity. This includes the sudden sell-off in the wake of President Donald Trump’s shocking “Liberation Day” tariffs.
Relying on AI-powered productivity gains, stablecoins, Fed rate cuts or inflation to prop up U.S. debt will ultimately backfire, he said.
“Financial engineering and false hope will not satisfy American lenders,” Ngarmboonanant predicted. “Only a credible plan to limit deficits and control our debt will ultimately achieve this. »
Bond investors’ ability to force lawmakers to change course has earned them the nickname “bond vigilantes.” invented by Wall Street veteran Ed Yardeni in the 1980s.
Indeed, bond market upheaval After Trump unveiled his global tariffs in April, he helped convince him to abandon his most aggressive rates. This prompted economist Nouriel Roubini to say: “the most powerful people in the world are bond vigilantes.”
But the analysts of Piper Sandler recently dismissed the power bond vigilantes actually have over politicians.
In an August memo, they pointed out that the bond market had not stopped federal deficits from exploding and had not deterred Trump from pursuing his comprehensive tariff agenda.
Yet the outlook for U.S. debt has become so dire that even longtime Republican Mitt Romney, a former senator and presidential candidate, has called for raise taxes on the rich as the Social Security Trust Fund heads toward insolvency in 2034.
“Today, all of us, including our grandmothers, are truly heading towards the precipice,” he warned in a statement. recent New York Times opinion article. “In general, Democrats insist on higher taxes, and Republicans on lower spending. But given the size of our national debt as well as the proximity of the sinkhole, both are necessary.”
