Treasury securities are attractive to investors because they are backed by the full faith and credit of the United States government, are offered in a wide range of maturities, and are exempt from state and local taxes. In addition, most of the securities offered to the public are marketable, meaning they can be resold. A small portion of securities are nonmarketable, meaning they are registered to the owner and cannot be sold in the financial market. U.S. Savings Bonds are an example.

A key reason investors purchase Treasury securities is because they are liquid—that is, investors can easily trade the security because there are many people interested in buying and selling at any given time. Treasury securities accounted for more than half of the trading volume in U.S. bond markets between 2000 and 2010, according to statistics from an association of securities firms, banks and asset managers. In 2010 daily trading volume in Treasury securities averaged more than $500 billion, compared to approximately $950 billion in total trading in U.S. bond markets. Trading volume of Treasury securities remained robust during the financial crisis in 2008 and 2009 when investors were generally uncertain about the financial condition and solvency of financial entities. Treasury securities were viewed as a "safe haven" investment.

Federal debt held by the public is owned by:

• domestic private investors, such as individuals, banks, and pension funds;
• state and local governments;
• the Federal Reserve; and
• international (i.e., outside of the U.S.) investors, including both private investors and foreign official institutions, such as central banks and national government-owned investment funds.

Between 2000 and 2010, the share of publicly held debt held by domestic private investors held steady and international investors' share increased, while the shares held by state and local governments and the Federal Reserve decreased. Ownership information is estimated primarily because securities are continually resold among investors.

The Federal Reserve The central bank of the United States. It is responsible for the conduct of monetary policy.  buys and sells marketable Treasury securities in the secondary market to conduct monetary policyThe use of reserve requirements, discount rates, and purchases and sales of Treasury securities (open market operations) by the Federal Reserve (the nation's central bank) to affect the rate of growth of the nation's money supply. The goals of monetary policy are to promote maximum employment, stable prices, and moderate long-term interest rates. in what are called "open market operations." The Federal Reserve adds reserves to the banking system by buying securities and drains reserves from the system by selling securities. Open market operations generally target the federal funds rate—the rate at which banks lend to one another on an overnight basis—thereby influencing short-term interest rates. The Federal Reserve typically purchases short-term Treasury securities for this purpose. However, during the recent financial crisis, the Federal Reserve also purchased longer-term Treasury securities in an effort to spur economic growth.

Treasury securities are attractive for open market operations because the market for these securities is broad and highly active. Consequently, the market can accommodate the Federal Reserve's transactions without disruption. The Federal Reserve Bank of New York posts information about the security holdings acquired via open market operations, http://www.newyorkfed.org/markets/soma/sysopen_accholdings.html.

For investors in other countries, the United States offers a stable political system and possible favorable returns. Also, the dollar is considered to be the world's dominant reserve currencyAn international currency used by non-residents as a medium of exchange, a unit of value, and a store of value. The U.S. dollar is presently considered to be the world’s dominant reserve currency.:

• The dollar was involved in more than 80 percent of activity in global foreign exchange markets in April 2010; the euro was second at just under 40 percent. (Because foreign exchange transactions involve two currencies, total transactions by currency sum to 200 percent.)
• Reported foreign exchange reserves held by other countries are heavily concentrated in dollars. The International Monetary Fund relies on voluntary reporting from countries and not all countries report the currency composition of their reserves.

Treasury securities are an attractive dollar-denominated asset for central banks to hold since they are considered by market participants to be the premium risk-free asset and are liquid.

As shown above, the share of debt held by international investors increased between 2000 and 2010, continuing a trend that began in the 1970's. The increasing share of foreign ownership is due in part to persistent federal budget deficits and low domestic saving. Federal budget deficits reduce national savings National saving is the portion of the nation's income not used for consumption during a given period. Gross national saving includes the saving of all sectors—households, businesses, and government; net national saving is gross national saving less consumption of fixed capital (depreciation). and can absorb funds saved by households, businesses, and other levels of government that would otherwise be available for investment. In addition to federal dissaving (persistent federal deficits), U.S. household saving over the last two decades has been lower than in the decades prior. However, an economy open to international trade and investment, such as the United States, essentially can borrow the surplus of savings of other countries to finance more investment than U.S. national saving would permit. The flow of capital into the United States has gone into a variety of assets, including Treasury securities, corporate securities, and direct investment.

The Treasury International Capital (TIC) reporting system collects data for the United States on cross-border portfolio investment flows, including an annual survey of foreign portfolio holdings of U.S. securities. Preliminary data indicate that as of June 30, 2010, foreign holdings of U.S. securities—both public and private—were approximately $10.7 trillion. Holdings of Treasury securities and U.S. agency debt (U.S. agencies include government sponsored enterprises (GSEs) The Federal Government has chartered these to provide financial intermediation for specified public purposes, such as mortgages. Examples include the Federal National Mortgage Association (Fannie Mae), the Federal Home Loan Mortgage Corporation (Freddie Mac), the Federal Home Loan Banks, the Farm Credit System, and the Federal Agricultural Mortgage Corporation. Although federally chartered to serve public-policy purposes, the GSEs are classified as non-budgetary and excluded from the Budget. This is because they are intended to be privately owned and controlled, with any public benefits resulting from the GSEs' business transactions accruing indirectly. such as Fannie Mae and Freddie Mac) account for about half of foreign holdings of U.S. securities. The other half of foreign holdings is fairly evenly split between equities (i.e., stock and shares in investment companies such as mutual funds) and corporate debt.

There are some limitations to these foreign ownership data. Specifically, because of the widespread use of financial intermediaries,Firms that borrow from consumer/savers and lend to companies and households that need resources for investment and consumption. the data identifies where the securities are held or the country through which the transaction was made, which may not be the owner's resident country. For example, a resident of Germany may buy a U.S. security and place it in the custody of a Swiss bank, which will often hold the security at a U.S. resident bank. For the survey, the U.S. bank will report that it is holding the security on behalf of a Swiss bank, not knowing that the owner of the security is German. Consequently, the survey reports large holdings of U.S. securities in major financial centers, such as the Cayman Islands, Switzerland, the United Kingdom, and Hong Kong.

Another limitation is that the survey does not provide insight into how a particular country's holdings are divided between private investors and official institutions, which have different reasons for investing. Foreign official institutions include central banks and national government-owned investment funds. Central banks hold foreign currency reserves to maintain exchange rates or to facilitate the country's trade. While the survey reported that foreign official institutions held approximately 75 percent of foreign holdings of Treasury securities, it does not identify foreign official holdings by country.

With these limitations in mind, the 2010 survey reports that more than 80 percent of foreign holdings of Treasury securities can be attributed to fourteen countries and a group of Middle Eastern oil exporting countries. China (excluding Hong Kong, Macau, and Taiwan) and Japan have the largest holdings. However, this does not mean that residents of these countries are the ultimate owners; two countries that appear on the list–the Cayman Islands and Luxembourg–are financial centers with small populations, about 50,000 people for the Cayman Islands and about 500,000 people for Luxembourg.

Countries with Largest Holdings of Treasury Securities (As of June 2010)

Source: Department of the Treasury. Notes: Countries shown on map represent 80 percent of foreign-held Treasury securities. Data from Preliminary Report on Foreign Holdings of U.S. Securities at End-June 2010. Final survey results will be released in late April 2011. Map from Map Resources. China refers to Mainland China and not Hong Kong, Macau, or Taiwan. Middle East oil exporters are Bahrain, Iran, Iraq, Kuwait, Oman, Qatar, Saudi Arabia, and the United Arab Emirates; the holdings for individual oil exporting countries are not available. Countries with Largest Holdings of Treasury Securities data: txt pdf