Luxembourg’s exposure to United States government debt is substantial, with $385.4bn held as of May 2024, according to the US treasury department. This amounts to 4.7% of the total $8.1trn in foreign holdings of US debt, making Luxembourg the fourth largest domicile for foreign bondholders. This ownership of US treasury securities represents the accumulated balance of federal borrowing. The US treasury issues these securities to a broad range of investors, including individual private investors, the Federal Reserve, financial institutions and foreign, state or local governments.
As of December 2023, the total outstanding US treasury securities had risen to $26.2trn, up from $16.6trn in December 2019. During this period, foreign holdings of US debt increased by $1.1trn, reaching approximately $8.1trn. Despite fluctuations over the years, foreign holdings comprised 31% of the publicly held debt by December 2023, with $197.5bn in interest paid to foreign holders that year.
Foreign holdings are categorised into official (governmental) and private sources. Governmental sources hold 47.7% ($3.8trn), while private investors hold 52.3% ($4.2trn) of foreign-held US federal debt. As of May 2024, the top five foreign holders of US federal debt are Japan ($1.128trn), China ($768bn), the United Kingdom ($723bn), Luxembourg ($385bn) and Canada ($355bn), representing 13.9%, 9.5%, 8.9%, 4.7% and 4.4% of foreign investment in US publicly held federal debt, respectively. Luxembourg surpassed Belgium for the fourth position in June 2023 and has maintained this ranking, while Canada gained the fifth spot in November 2023.
Interestingly, US securities held by foreign investors are attributed to the country where they are held in custody. Therefore, securities kept by Luxembourg banks are counted under Luxembourg, not the investor’s own country. This explains the significant holdings in major financial hubs such as Luxembourg, the Caribbean, Belgium and Switzerland.
Luxembourg has been one of the top 20 US bondholders for decades. The grand duchy was, for example, the foreign holder of American government debt at the end of 2014, the in January 2018 and in April 2019.
The data does not reveal specific holdings, but provides a top-line number by country that includes central banks, private financial institutions and local subsidies of foreign financial institutions.
To maintain its status as a net borrower from abroad, the US must run a current account deficit, mainly driven by the trade deficit. Since 2000, both US borrowing from abroad and the trade deficit have each exceeded $300bn annually. In 2023, US borrowing from abroad totaled $832bn, a decrease from $976bn in 2022. This borrowing results from foreign purchases of US government and private securities, along with other assets.