The Tiny Cayman Island Holding $265 Billion in Treasuries

Deep Dive: Foreign Holdings of U.S. Treasuries Climb
  • Caymans rank third among foreign holders of U.S. debt
  • Hedge funds domiciled in Caribbean territory drive trend

A Caribbean financial center favored by hedge funds is now the third-biggest foreign owner of U.S. government debt.

The Cayman Islands, where more hedge funds are domiciled than anywhere else in the world, held $265 billion of Treasuries as of March, up 31 percent from a year earlier, according to data the U.S. Treasury Department released Monday. It was the first time that the U.S. released details of bond holdings among OPEC and Caribbean countries, and it came in response to a Freedom-of-Information Act request submitted by Bloomberg News.

The stockpile makes the British territory, an offshore tax haven with about 60,000 residents, the largest holder after China and Japan. Those nations, the world’s second- and third-biggest economies, each own more than $1 trillion of Treasuries.

The surge in ownership of U.S. debt for the Caribbean getaway shows that hedge funds are joining more traditional mutual fund managers in buying Treasuries amid lackluster returns in other assets, with many global stock indexes posting losses in 2016. Negative bond yields in Europe and Japan are also pushing asset managers into the $13.4 trillion Treasuries market, which is on pace to gain for a third consecutive year.

“Most hedge funds are using Treasuries as a way to park assets without taking a lot of risk,” said Donald Steinbrugge, managing partner of hedge-fund consulting firm Agecroft Partners in Richmond, Virginia.

About 60 percent of the world’s hedge-fund assets are domiciled in the Cayman Islands, according to a 2014 report by consulting firm Oliver Wyman & Co.

"A robust regulatory regime and no or low entity-level taxation allowed the Cayman Islands to build a long-lasting reputation as a global hedge funds hub," according to the report.

An e-mail and phone call to the public relations division of the Cayman Islands Monetary Authority weren’t immediately returned.

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