James D. Hamilton
Wall Street Pit
July 12, 2010
I’ve been taking a look at what happened to the demand for U.S. Treasury bills and bonds as a result of the financial crisis. Here’s a summary of some of the data that I found interesting.
The Federal Reserve publishes flow of funds accounts that include estimates of who has been holding the debt issued by the U.S. Treasury at different points in time. Here’s a pie chart showing the breakdown as of the end of 2007. At that time, almost half of the U.S. Treasury debt was owed to people or institutions outside the United States. The Federal Reserve and state and local governments held another quarter. Pension funds (combined private and federal, state and local government), mutual funds, and money market funds held another 15%. U.S. households played a very minor role in lending to the U.S. government, with holdings of only about 5% of the total debt.
In the two years since then, U.S. Treasury debt has increased more than 50%. The chart below summarizes who bought all that new debt. Foreigners bought more than half of the net new debt issuance. But the Federal Reserve and state and local governments have barely increased their holdings of Treasury debt at all, meaning that other sectors significantly increased their share. In particular, money market and mutual funds increased their holdings of Treasury debt by 85% over the last two years. Banks increased their holdings by 146%, and households by 143%.
