As U.S. Debt Soars to $38 Trillion, Hedge Funds Jump Into the Bond Market

The composition of US debt holders has shifted significantly over the past decade, with ownership moving away from foreign governments and toward profit-driven private investors—a trend that could make financial markets more fragile during periods of stress, according to Geng Ngarmboonanant, a managing director at JPMorgan and former deputy chief of staff to Treasury Secretary Janet Yellen. Jason Ma reported for Fortune.

Hedge funds, which have doubled their share of the Treasury market over the past four years, are of particular concern to policymakers.

Foreign governments held more than 40% of US Treasury securities in the early 2010s, up from just over 10% in the mid-1990s, Ngarmboonanant wrote in a New York Times opinion piece.

That foreign demand helped keep US borrowing costs artificially low.

“Those easy times are over,” he warned. Foreign governments now hold less than 15% of the Treasury market.

While their absolute holdings have remained roughly stable over the past 15 years, they have not increased purchases to match the surge in US debt, which now exceeds $38 trillion.

Private investors have stepped in to absorb the growing supply, but they are more likely to demand higher returns, increasing volatility.

Hedge funds, which have doubled their share of the Treasury market over the past four years, are of particular concern to policymakers. The largest share of US debt held overseas is now registered in the Cayman Islands, where many hedge funds are legally based.