This week the federal government will issue $366 billion in debt, much of which will be purchased by foreign investors.
The combination of growth and interest rate differentials, as well as rapidly changing fiscal and trade policies that favor a stronger dollar and the purchase of dollar-denominated assets, will continue to support foreign purchases of American debt despite rising deficits.
Through the end of November, the largest foreign holders of U.S. debt were Japan at $1.09 trillion, China at $768 billion and the U.K. at $765 billion.
Since 2019, China’s holdings of U.S. debt have declined by 31.8%, while Japan’s have increased by 3.2% and the U.K.’s have soared by 163.9%.
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The Federal Reserve, with $4.274 trillion on its balance sheet, is the largest holder of American debt.
That debt will, however, be bought with a rising risk premium, making it more expensive for the federal government to continue down the path it is on.
Given the fiscal expansionary policies that are being put in place, this will play an increasingly important role in the economic and financial narrative over the next few years.
