US Treasuries Face Volatile Future as Foreign Demand Shifts

A recent working paper from the Brookings Institution's Hutchins Center on Fiscal and Monetary Policy highlights shifts in foreign demand for US Treasuries, which could impact market stability.

The authors point out that the US net international investment position has been negative since the late 1980s, with a significant increase over the past decade. From 2010 to 2025, this position as a share of GDP widened from -19% to -70%, nearly fourfold.

Since the Global Financial Crisis, foreign governments and central banks have become less prominent holders of US Treasuries, while foreign private investors have taken up a larger share. The authors identify three main reasons for weakened official demand: slowing accumulation of foreign exchange reserves, large purchases by the Federal Reserve, and appreciation of the US dollar against other reserve currencies.

The rise in private investment becomes more concerning as rising debt and interest rates increase debt-servicing costs. This could lead to volatile Treasury yields and make it less likely for them to decline during economic stress periods. The authors conclude that the country's fiscal trajectory, geopolitical disruptions, and foreign investment makeup will play a crucial role in Treasury market stability.