Many Americans have heard the warning: the astronomical size of US national debt is deeply concerning. For the first time in modern history, US interest payments on the national debt exceed defense spending—the total debt has now surpassed $30 trillion, with interest costs continuing to climb. Looking ahead, there is no end in sight to this situation, as the US fiscal deficit has reached a historical peak for a non-crisis period.
Worryingly, the sheer size of the debt is not the only issue Americans need to警惕. Who is footing the bill for this debt is equally critical. Over the past decade, the composition of US Treasury creditors has undergone a profound transformation. This shift has not only pushed up US interest rates but also significantly increased interest rate volatility, consequently raising the costs of mortgages, student loans, and various other forms of borrowing. When financial markets come under pressure, this change in structure could further amplify vulnerabilities within the US financial system.
For a long time, by virtue of its status as the world's leading economy and financial power, the United States has enjoyed a unique privilege. In the early 2000s, when the US re-entered a deficit spending mode, governments around the world were actively accumulating foreign exchange reserves. The US dollar and US Treasuries, recognized globally as the safest and most liquid assets, became the preferred choice for reserve holdings. This provided the US with a structural financing advantage: governments increased their holdings of Treasuries due to policy imperatives, rather than purely chasing investment returns, and were largely indifferent to price fluctuations. At that time, the US seemed to have a large and growing base of 'loyal buyers'—they would enter the market regardless of Treasury yields, unlike ordinary investors who might chase higher returns elsewhere. Consequently, the US was able to finance massive amounts of debt at extremely low interest rates.
In the early 2010s, excluding the portion held by the Federal Reserve, foreign governments held over 40% of US Treasuries, a figure that was just over 10% in the mid-1990s. As another category of 'policy-driven buyers,' the Federal Reserve further underpinned low US interest rates through multiple rounds of bond purchase programs during and after the 2008-2009 global financial crisis. At its peak, over half of US Treasuries were held by these types of 'non-market-driven' institutions, artificially suppressing the overall borrowing costs for the United States.
However, this favorable situation has now ended. Today, foreign government holdings account for less than 15% of the entire US Treasury market. Although the dollar amount they hold is roughly similar to 15 years ago, the pace of their accumulation has long failed to keep up with the expansion of US debt. Simultaneously, the Federal Reserve has reduced its Treasury holdings by approximately $1.5 trillion over the past few years.
So far, the overall functioning of the Treasury market has remained stable. Private investors have stepped in to fill the gap in a timely manner, which also testifies to the size and resilience of the US bond market.
Nevertheless, it cannot be ignored that the Treasury market is now more susceptible to profit-driven market forces than ever before. Combined with the high level of US debt, even small increases in interest rates or minor adjustments to borrowing terms can carry significant costs. Against the backdrop of persistently high, and potentially widening, US fiscal deficits, the trend of private capital becoming the primary buyer of Treasuries is likely to continue pushing interest rates higher—simply because, compared to policy-driven institutional buyers, private investors demand a higher risk premium for holding US debt. Interest rate volatility will also intensify further; any economic data releases, policy signals, or even the now commonplace political gridlock in the US could trigger sharp swings in rates.
US government officials are particularly concerned about the growing influence of hedge funds in the Treasury market. The trading activities of these entities are often highly leveraged, making them easily disrupted during market volatility, thereby amplifying turbulence in the Treasury market. Federal Reserve data shows that hedge fund positions in the Treasury market have doubled over the past four years, making the Cayman Islands—the domicile for many hedge funds—the largest holder of US Treasuries outside the United States itself. Typically, investors flock to Treasuries as a safe haven during crises. However, significantly influenced by hedge fund trading behavior, the Treasury market experienced unusual and severe volatility during recent market shocks, including the initial outbreak of the COVID-19 pandemic in March 2020 and the announcement of the 'Liberation Day' tariff policies by the Trump administration in April 2025.
Recently, investors' required risk premium for long-term US Treasuries has been rising, reflecting growing market concerns about the US economic and fiscal outlook. According to the most commonly used measure, the risk premium for the benchmark 10-year Treasury note is currently about 0.8 percentage points. This seemingly small figure translates into billions of dollars in additional interest payments. These costs will not solely be borne by Wall Street bond traders or the US government: higher interest rates squeeze household disposable income and erode corporate profits; the crowding-out effect of new government debt issuance can抑制 private investment and hinder overall economic growth; more importantly, a stable debt financing capacity is fundamental for the government to fulfill its core functions, and the changing structure of Treasury financing will ultimately have a profound impact on the United States' comprehensive national power.
For now, there is no need for market panic. The US dollar remains the global reserve currency, and US Treasuries are still recognized as a global safe-haven asset. Globally, no country can yet challenge US financial dominance.
However, blind optimism is not the solution. With debt levels continuing to膨胀 and the creditor structure quietly changing, the United States must take concrete measures to ensure its Treasury debt remains attractive to discerning global private investors.
This means the US must abandon any 'shortcut' thinking for solving the debt problem. Barring a miracle, new technologies like artificial intelligence alone are unlikely to spur enough economic growth to resolve the US debt dilemma. Some suggest that the expanding scale of stablecoins, which are backed by Treasuries, will generate massive new demand for US debt. But in reality, many stablecoin purchases simply involve converting existing Treasury holdings into stablecoins, not bringing in genuine new capital.
The most risky proposals are those advocating for the government to take 'shortcuts.' One suggestion is for the Treasury to flexibly adjust the type and amount of debt issuance based on short-term market fluctuations, rather than adhering to a regular, predictable issuance strategy. Even if feasible, such an approach is unlikely to genuinely reduce US borrowing costs in the long run. Another proposal is for the Federal Reserve to aggressively cut interest rates to压低 financing costs. In fact, investors are increasingly worried that the US might resort to 'currency debasement,' using inflation to dilute the real value of the debt—a practice本质上 similar to ancient monarchs debasing their coinage by mixing in cheaper metals like copper.
Resolving debt through inflation is本质上 a form of default, and the market will inevitably react negatively. History has long proven that the foundation of any bond market is trust: the debtor must deliver the full promised value to the creditor. The core reason investors are willing to hold large amounts of US debt is their trust in the underlying system—the Federal Reserve's independent decision-making, the Treasury's predictable issuance strategy, a sound legal system, and the international cooperation underpinning the dollar's central role.
Deviating from these core principles will ultimately be counterproductive. The market's backlash could be gradual or, as history shows, sudden and unexpected. Building trust takes a long time, but it can collapse in an instant.
A classic quip from veteran political commentator James Carville comes to mind: 'I used to think if there was reincarnation, I wanted to come back as the president or the pope or a .400 baseball hitter. But now I want to come back as the bond market. You can intimidate everybody.' The bond market has always possessed this power: a nation that fails to discipline itself will eventually be disciplined by the rules of the bond market. The recent lesson from the UK is clear—the aggressive fiscal budget proposed by then-Prime Minister Liz Truss triggered strong market opposition, leading to severe volatility in UK sovereign debt markets and the swift downfall of her government.
Playing financial games or harboring unrealistic fantasies will never retain America's creditors. Only by presenting a credible plan to genuinely curb the fiscal deficit and manage the debt level can the fundamental problem be addressed.
