Lisa Abramowicz is a Bloomberg Gadfly columnist covering the debt markets. She has written about debt markets for Bloomberg News since 2010.

It's jarring to hear that a nation of fewer than five million people has become the fourth-largest foreign holder of U.S. Treasuries.

But that appears to be the case. Ireland's stake in U.S. government debt is now bigger than its annual economic output and amounts to $264.3 billion, according to the latest data. That works out to about $52,860 for each Irish resident.

Unexpected Whale
Ireland has risen to become the fourth-biggest foreign owner of U.S. Treasuries
Source: U.S. Treasury

That seems outrageous and implausible. But on closer inspection, it makes a lot of sense. This surge in Irish holdings most likely represents a burgeoning demand for dollar-denominated bonds from mutual funds across Europe, not a sudden Irish appetite for Treasuries.

Here's the logic: Ireland has long been known as business friendly, and the Irish Stock Exchange said earlier this year that it had become the world's leading exchange for listing bonds and investment funds. All those asset managers have good reason to buy Treasuries over government debt in Europe, where yields have turned negative on a swelling pool of notes.

Average European government bond yields have fallen to about 0.6 percent, which are just half the average rates on U.S. government notes.

Diverging Paths
U.S. government debt is relatively high yielding relative to European sovereign bonds
Source: Bank of America Merrill Lynch index data

Ireland wouldn't be the first country to act as a conduit for investments from other nations. That's what's going on in the Cayman Islands, which is the third-biggest foreign holder of Treasuries, most likely because of its reputation as a hedge-fund tax haven. And Belgium has long been rumored to be the Treasury sales counter for some behemoth buyers, including China. (As China has sold U.S. debt in the past year, Belgium's holdings have cratered.)

Rapid Shift
Belgium's Treasury holdings have plummeted as China sold its foreign-currency assets
Source: U.S. Treasury

So what's the implication? First, the $13.4 trillion U.S. government bond market is more dependent on investment funds arguably than ever before, especially compared with foreign central banks that have been selling some holdings. And second, the holdings data can raise more questions than answers about the true holders of this debt. Saudi Arabia, for example, supposedly owns just $116.8 billion of Treasuries as of March, according to Federal Reserve data just disclosed for the first time in 41 years. That seems shockingly low, especially considering that nation's recent threat to sell $750 billion of its U.S. debt holdings.

For now, Ireland can be seen as a proxy for European investors' appetite for dollar-denominated government debt. And based on the data, that demand is fierce.

This column does not necessarily reflect the opinion of Bloomberg LP and its owners.

To contact the author of this story:
Lisa Abramowicz in New York at

To contact the editor responsible for this story:
Daniel Niemi at