By Joseph Adinolfi
Treasurys have outperformed bonds issued by the world's other major economies in the past year, data show
EU members hold about $2 trillion in U.S. debt.
There has been much talk lately about foreign investors backing away from the U.S. Treasury market, with President Donald Trump recently threatening to retaliate against nations that sell.
But the reality on the ground for U.S. debtholders has been fairly optimistic: U.S. Treasurys outperformed government bonds issued by other members of the &#34;G-7,&#34; a group of the world's most advanced economies, over the past year, according to Dow Jones Market Data. When bond prices rise, yields fall. That typically translates to lower borrowing costs.
The White House's pursuit of a deal allowing expanded U.S. access to Greenland and the resulting tensions between the U.S. and NATO allies has rekindled fears that U.S. allies could start backing away from the roughly $30 trillion Treasury market. Danish pension fund AkademikerPension reportedly plans to sell its holdings by the end of January.
In May, the U.S. lost its last pristine credit rating, with all three major credit-rating agencies now ranking America below the top AAA bracket. Concerns about the large U.S. deficit have continued to fester, but international investors aren't expected to embark on any wholesale effort to diversify away from U.S. debt - even if they could end up buying less of it.
&#34;Europe and Japan are not large enough to accommodate a full-blown flight away from the U.S.,&#34; said Gennadiy Goldberg, head of U.S. rates strategy at TD Securities, referring to the smaller sizes of their respective government bond markets.
The U.S. has $38.5 trillion in total government debt, $27.4 trillion of which is in publicly available securities like Treasury bills, notes and bonds, according to data from SIFMA.
Treasury yields rose sharply this week as a bond-market selloff in Japan spilled over into global markets before easing up. The administration's threats over Greenland reignited fears of the &#34;Sell America&#34; trade. The S&amp;P 500 index SPX and ICE U.S. Dollar Index DXY were lower on the week through early Friday. But both U.S. stocks and bonds have pared their losses.
The moves captured the focus on the bond market, with new corporate-bond issues briefly slowing to a trickle earlier this week and traders increasingly finding themselves focused on geopolitics. It's unusual because bond traders typically are more concerned with interest-rate spreads and moves in the currency market, said Victoria Fernandez, chief market strategist and a fixed-income portfolio manager at Crossmark Global Investments.
&#34;This is somewhat new, the talk in Davos about geopolitical issues causing some turmoil,&#34; Fernandez told MarketWatch.
How much does Europe own?
Treasury data show members of the European Union own about $2 trillion in U.S. debt. This figure excludes the United Kingdom and Switzerland. While the U.K. owns nearly $1 trillion in Treasurys, it is also a well-known custodial center for bonds that are, in reality, held by investors based elsewhere.
This also applies to Luxembourg and the Cayman Islands, which also rank among the largest holders.
Combined, the European Union is the largest investor in U.S. debt. But Japan and China also hold sizable slugs. While China has recently been shifting more of its official central-bank reserves into gold, some say the official data partly obscures the true size of the country's Treasury holdings.
Fernandez at Crossmark said investor appetite for U.S. debt isn't showing signs of waning, even if America's public finances look to be getting worse. Recent auctions for longer-dated bonds have seen strong demand, including one for $13 billion in 20-year bonds on Wednesday that helped push yields lower.
According to estimates from the Committee for a Responsible Federal Budget, the total U.S. debt is forecast to eclipse $50 trillion over the next decade. With so much additional Treasury supply expected, foreign investors may need to keep on buying, even as other sources of demand have been growing.
As recently as 2008, foreign investors held nearly 60% of all outstanding tradable U.S. debt. Mutual funds and pension funds have taken on a bigger share over the past few years.
A hedge-fund strategy known as the &#34;basis trade&#34; has helped sop up more Treasury issuance. It typically involves large, sophisticated investors buying cash bonds while aiming to profit by selling equivalent futures contracts. The leverage in the futures contract can help amplify their returns.
&#34;The basis trade is utterly gigantic,&#34; said Harley Bassman, managing partner at Simplify Asset Management and the creator of the ICE BofAML MOVE Index, which tracks the implied, or expected, volatility of the bond market using options-market data.
The index had recently fallen to its lowest level in years. But the bond-market shake-up earlier this week caused a modest bump. The yield on the 10-year note BX:TMUBMUSD10Y on Tuesday cemented its biggest three-day advance since May, Dow Jones Market Data showed.
Mike DeStefano contributed
-Joseph Adinolfi
This content was created by MarketWatch, which is operated by Dow Jones &amp; Co. MarketWatch is published independently from Dow Jones Newswires and The Wall Street Journal.
(END) Dow Jones Newswires
01-23-26 0922ET

<p>The article discusses the current state of U.S. debt ownership, highlighting that EU members hold about $2 trillion in U.S. debt. Despite concerns about foreign investors potentially selling off U.S. Treasurys, recent data shows strong demand for U.S. bonds, with Treasurys outperforming other major economies' bonds. The U.S. has a total government debt of $38.5 trillion, and while geopolitical tensions may cause fluctuations, experts believe that foreign investors will continue to buy U.S. debt due to the size of the market and ongoing demand.</p>

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These countries own the most U.S. debt. Will they start selling?