by Brad Houle, CFA
Principal
Head of Fixed Income
Portfolio Management
There’s a common belief that most of the U.S. national debt is owned by foreign countries—especially China. But the reality is far more nuanced, with most of the debt being held domestically.
As of December 2024, the total U.S. national debt stood at $36.1 trillion. That number includes two main parts: debt held by the public and intragovernmental holdings. The public portion—about $28.8 trillion—is what really matters when we talk about who owns U.S. debt. The rest, around $7.3 trillion, is money the government owes itself, such as social security and Medicare trust funds.
Surprisingly, about 70% of the public segment is held by U.S.-based investors and institutions, roughly $20.2 trillion. The biggest single domestic holder? The Federal Reserve, with around $4.5 trillion in treasury securities. In other words, that’s about 15.5% of all publicly held debt. Other major domestic holders include mutual funds, banks, state and local governments, and pension funds.
The amount of debt owned by U.S. investors has risen sharply in the past few years. Much of this growth has occurred since the inflation that followed COVID, whereby the Federal Reserve increased short-term interest rates to slow the economy to combat elevated inflation. Much of the holdings of U.S. treasuries are in short-term treasury bills which are the primary securities owned in money market funds.
Foreign investors, while still important, hold a smaller share—about $8.6 trillion, or 30% of the public debt. That’s down from nearly 50% back in 2011. The two biggest foreign holders are Japan (around $1.06 trillion) and China (about $759 billion). Other countries such as the UK, Luxembourg, and the Cayman Islands also appear on the list, though those numbers can be misleading since many investments are routed through these financial hubs.
One important point: when the Federal Reserve holds U.S. debt, the interest it earns mostly gets returned to the Treasury. So, in a way, that portion of the debt doesn’t really cost taxpayers as much as it might seem.
Circling back, the idea that foreign countries own most of America’s debt just isn’t true. The majority is held right here at home, by individual Americans and American institutions. And that’s a big part of why U.S. Treasuries remain one of the safest and most trusted investments in the world.
In other news, this week closed at an all time high on Friday. with the S&P 500 briefly exceeding its previous peak, indicating that stock investors have set aside recent geopolitical fears. This market performance is largely driven by fading uncertainties regarding trade and Middle East tensions.
Takeaways for the Week
70% of the public part of the US debt is held domestically while 30% of public debt is held by foreign counties.
The United States is far less dependent on foreign governments to fund out debt than is generally perceived.