Over the past decade, the ownership of U.S. debt has shifted dramatically, leaning more toward profit-focused private investors and away from foreign governments that are less sensitive to price changes.
This shift risks making the U.S. financial system more fragile during periods of market stress, according to Geng Ngarmboonanant, a managing director at JPMorgan and former deputy chief of staff to Treasury Secretary Janet Yellen.
Foreign governments held over 40% of Treasury securities in the early 2010s—up from just over 10% in the mid-1990s—he wrote in a on Friday. This reliable group of investors allowed the U.S. to borrow huge sums at artificially low interest rates.
“Those easy times are gone,” he warned. “Foreign governments now make up less than 15% of the entire Treasury market.”
While they haven’t dumped their Treasuries and still hold roughly the same amount as 15 years ago, foreign governments haven’t increased their purchases to keep pace with the recent surge in U.S. debt, which now exceeds $38 trillion.
Private investors have stepped in to absorb the massive supply of Treasury bonds, but they’re also more likely to demand higher returns, leading to greater rate volatility, Ngarmboonanant pointed out.
The growing influence of hedge funds—whose presence in the Treasury market doubled over the last four years—raises particular concern among U.S. officials, he added. In fact, the largest share of U.S. debt held overseas is now in the Cayman Islands, where many hedge funds are officially based.
Ngarmboonanant blamed “unusual turbulence” during recent shocks in the Treasury market (historically a safe haven during crises) on hedge fund activity. This includes the sudden selloff immediately after President Donald Trump’s surprising “Liberation Day” tariffs were announced.
Relying on AI-driven productivity gains, stablecoins, Fed rate cuts, or inflation to sustain U.S. debt will eventually backfire, he said.
“Financial engineering and false hopes won’t keep America’s lenders satisfied,” Ngarmboonanant predicted. “Only a credible plan to rein in deficits and control our debt will ultimately do that.”
Bond investors’ ability to force lawmakers to change course has earned them the “bond vigilantes” nickname, which was in the 1980s.
Indeed, after Trump unveiled his global tariffs in April helped convince him to retreat from his most aggressive rate proposals. That prompted economist Nouriel Roubini to say, “.”
But analysts at recently downplayed the actual power bond vigilantes have over politicians.
In an August note, they pointed out that the bond market didn’t stop federal deficits from exploding and hasn’t deterred Trump from continuing to push his overall tariff agenda.
Still, the U.S. debt outlook has become so dire that even long-time Republican Mitt Romney—former senator and presidential candidate—has called for as the Social Security Trust Fund races toward insolvency in 2034.
“Today, all of us, including our grandmothers, are truly heading for a cliff,” he warned in a op-ed. “Typically, Democrats insist on higher taxes, and Republicans insist on lower spending. But given the size of our national debt and how close the cliff is, both are necessary.”