U.S. Treasury Securities: Types, History, Holders, and Global Economic Implications

Introduction

The world of U.S. Treasury securities forms the backbone of the global financial system, with far-reaching implications for international economics, geopolitics, and everyday economic activities.

These instruments represent how the world’s largest economy borrows money, and their stability has traditionally been considered a cornerstone of the global financial order. However, recent events have raised questions about their future role.

Types of U.S. Treasury Securities

The U.S. government issues three main types of debt securities, each serving different investment timeframes and purposes:

Treasury Bills (T-Bills)

Treasury bills are short-term investments with maturities of one year or less. They are sold at a discount to their face value and don’t pay periodic interest. Instead, investors profit from the difference between the purchase price and the redemption value at maturity.

T-bills are typically issued with maturities of 4 weeks, 8 weeks, 13 weeks, 26 weeks, and 52 weeks, making them ideal for investors seeking short-term, highly liquid investments.

Treasury Notes (T-Notes)

Treasury notes have intermediate maturities ranging from 2 to 10 years.

Unlike T-bills, T-notes pay a fixed interest rate (the coupon rate) every six months until maturity.

The income from these interest payments is taxed at the federal level but exempt from state and municipal taxes.

T-notes are issued in maturities of 2, 3, 5, 7, and 10 years, with the 10-year Treasury note serving as a benchmark for many other economic interest rates.

Treasury Bonds (T-Bonds)

Treasury bonds have the most extended maturities, typically 20 or 30 years. Like T-notes, they pay interest semiannually, but usually at higher rates due to their longer term.

These long-term securities are crucial in funding government operations and managing the national debt.

Their long maturity means they’re more sensitive to changes in interest rates compared to shorter-term securities.

Historical Issuance of Bonds: War Bonds and Their Impact

Liberty Bonds in World War I

During World War I, the U.S. government launched massive campaigns to sell “Liberty Bonds” to finance the war effort.

On April 24, 1917, the First Liberty Loan Act was passed, authorizing the Treasury Department to issue bonds and provide loans to Allied powers. This marked one of the first significant efforts to involve everyday Americans in financing government operations.

The government employed aggressive marketing tactics, including patriotic propaganda and public shaming of “slackers” who didn’t buy bonds.

Messages like “Buy Bonds Till It Hurts” and “Come Across or the Kaiser Will” were commonly used. During World War I, the federal government raised $5 billion through these Liberty Loan drives.

Celebrity Endorsements

On April 8, 1918, Hollywood stars Charlie Chaplin and Douglas Fairbanks held a war bond drive on Wall Street that attracted 20,000 and 30,000 people—the largest crowd ever assembled on Wall Street.

Standing before the statue of George Washington, Chaplin announced through a megaphone: “I never made a speech before in my life. But I believe I can now,” and urged citizens to forget about interest rates and buy bonds to support the war effort.

World War II War Bonds

During World War II, war bond campaigns reached new heights. Between November 1942 and December 1945, Americans invested approximately $150 billion in bonds to finance the war.

Throughout the war, 85 million Americans—nearly two-thirds of the population—purchased bonds worth more than $180 billion.

These war bonds served dual purposes: financing the massive war expenditure (the U.S. Government spent some $300 billion during World War II) and controlling inflation.

By encouraging citizens to save rather than spend at a time when consumer goods were scarce, the government helped prevent runaway inflation.

Why Governments Issue Bonds

Governments issue bonds for several key reasons

Funding government operations

Bonds allow governments to raise funds to cover public expenses and manage the national debt.

Financing specific initiatives

During wartime, bonds provide funds for military operations and equipment.

Controlling inflation

By selling bonds, governments remove money from circulation, which can help control inflation, especially during periods of high economic activity or wartime production.

Managing short-term cash flow

Treasury bills specifically help governments meet short-term funding requirements.

Reducing fiscal deficits

Bond issuance helps bridge the gap between government spending and tax revenue, reducing the need for direct money creation.

Current Top Foreign Holders of U.S. Treasury Securities

As of February 2025, the major foreign holders of U.S. Treasury securities were:

Japan

$1,125.9 billion, up from $1,079.3 billion the previous month.

China

$784.3 billion, up from $760.8 billion.

United Kingdom

$750.3 billion, up from $740.2 billion.

Cayman Islands

$417.8 billion, up from $404.5 billion.

Luxembourg

Approximately $410 billion based on earlier data.

It’s worth noting the significant shifts in these holdings over time.

Japan’s holdings decreased from $1.21 trillion five years ago, while China’s dropped significantly from $1.07 trillion during the same period.

Conversely, the United Kingdom has substantially increased its holdings from $450 billion five years prior.

As of February 2025, foreign countries held approximately $8.817 trillion in U.S. Treasury securities, an increase of 3.4 percent from January and a 10.2 percent rise year over year.

Current Interest Rates and Safety of U.S. Treasury Securities

Current Yields

As of April 2025, yields on U.S. Treasury securities had risen significantly:

Within a week, the 10-year Treasury yield increased from 4.01% to 4.50%.

The yield reached as high as 4.592%, the highest since February.

These rapid increases represented around 50 basis points in just five days.

Safety as Investments

U.S. Treasury securities have traditionally been considered among the safest investments in the world for several reasons:

The U.S. government has never defaulted on its debt.

They’re backed by the U.S. government's “full faith and credit.”

During times of uncertainty, investors typically flock to Treasuries as a “haven.”

However, recent events have raised questions about this status.

The unusual sell-off in Treasury markets during market uncertainty in April 2025 indicated a potential shift in investor sentiment. As one analyst said, “The fear is the US is losing its standing as the haven.”

Potential Consequences of Foreign Investors Dumping U.S. Bonds

If major foreign holders were to reduce their Treasury holdings significantly, several serious consequences could follow

Higher borrowing costs

Rising yields would increase the cost of servicing the U.S. government’s enormous debt, potentially leading to fiscal challenges.

Impact on consumer borrowing

Higher Treasury yields would likely increase interest rates on mortgages, car loans, credit cards, and other consumer borrowing, affecting everyday Americans.

Market instability

A mass sell-off could trigger broader financial market volatility, affecting stock markets and global economic stability.

Dollar value effects

Significant Treasury selling could potentially devalue the U.S. dollar, affecting its status as the world’s reserve currency.

Loss of investor confidence

Perhaps most concerning, a major sell-off could signal a fundamental loss of confidence in the U.S. government’s fiscal management and stability.

Are Foreign Holders Planning to Dump U.S. Treasuries?

Despite speculation, current FAF research doesn’t support the narrative that major foreign holders are systematically dumping U.S. Treasury securities:

Recent data shows increases

Foreign holdings of U.S. Treasuries rose 3.4% in February 2025, with Japan and China increasing their holdings.

China’s strategic considerations

While there’s been speculation about China unloading Treasuries as retaliation for tariffs, experts note this would likely hurt China as well.

As one analyst said, “China selling down Treasury holdings would effectively be shooting themselves in the foot.”

Historical precedent

During the 2018-2019 trade war, China responded primarily through currency depreciation rather than Treasury sales, suggesting they view their Treasury holdings as financial assets rather than geopolitical weapons.

There is limited evidence of coordinated selling

While the Treasury market has been volatile, major holders like Japan, the EU, or China have no clear evidence of coordinated selling.

Instead of foreign selling, recent Treasury market volatility may be more attributable to concerns about U.S. fiscal policy, inflation expectations following tariff announcements, and technical factors in financial markets such as the unwinding of leveraged trading positions.

Conclusion

U.S. Treasury securities have played a crucial role in financing government operations—from world wars to everyday functions—and have traditionally been viewed as the bedrock of the global financial system.

Their historical stability has made them a benchmark for “risk-free” investment.

However, recent market dynamics have raised questions about their future status.

While there’s no evidence of coordinated dumping by major foreign holders, the unusual Treasury market volatility amid uncertainty signals potential shifts in global investor sentiment toward U.S. debt.

As geopolitical tensions continue and concerns about U.S. fiscal policy grow, the Treasury market must be closely watched.

Any significant shift in foreign holdings could have profound implications for the U.S. economy, global financial stability, and the international monetary system.