Why China’s U.S. Treasuries Are a Double-Edged Sword

It’s the biggest pile of debt in the world -- the $15.9 trillion U.S. Treasuries market. It’s been built with the help of foreign central banks and investors, who have clamored to buy U.S. government bonds through good times and bad. But what happens if their appetite wanes? Both China and Japan -- the biggest foreign owners of Treasuries -- have pared their holdings from the record levels of recent years. Against a backdrop of increased trade tensions with China and bigger U.S. budget deficits, a drop in demand for the bonds could be particularly ill-timed. But such a move would not be without its dangers for China as well.

No. Nor has the U.S. ever owed so much. Foreign investors hold $6.4 trillion in U.S. government debt, more than twice as much as in 2008. (The share of debt owned by foreigners fell in that time period, to 40% from 56%, primarily because the U.S. Federal Reserve was buying so much itself.) China is the largest foreign holder of Treasuries at the moment, followed by Japan, and between them they account for more than $2 trillion of U.S. securities.