In this article, we will be taking a look at the 15 countries that own the most U.S. debt. To skip our detailed analysis, you can go directly to see the 5 countries that own the most U.S. debt.
The U.S. has, for many years, had the highest debt in the world by a long distance. While traditionally, debt has been considered to be a negative indicator, and while this stigma is still present in many countries and cultures around the world, global thinking has changed in this regard and debt has been considered not just relevant but often necessary for growth. This is why some of the biggest companies in the world have increased their debt profile, though generally, companies operating in more capital-intensive industries are often highly leveraged.
On the other hand, if countries or companies continue to increase their debt and become highly leveraged, then they are susceptible to changes in interest rates, which is why the interest coverage ratio is an important indicator of assessing a company’s potential to be able to repay its debt, and a company where the interest coverage ratio is less than 2 is often considered to be a risky proposition for investment, though this can also vary industry by industry and even company by company depending on other variables. Similarly, if a country’s external debt is really high, then rising interest rates simply result in the debt continuing to increase and while the U.S. is the biggest economy in the world and can pay its rising debt, the countries that own the most U.S. debt will receive much higher interest payments and even the U.S. might have to divert cashflow from other activities to be able to meet its interest payments. Currently, the U.S. is also at the top of the countries with the highest debt to GDP ratios in the world.
This is exactly the situation that is playing out right now, as interest rates across the world have continued to increase while governments bid to control rampant inflation, which has resulted in higher interest payments and according to the Peter G. Peterson Foundation, this could impact the U.S.’s fiscal outlook, with a report by the Congressional Budget Office indicating that if changes aren’t made, then public debt could jump from 98% of total GDP in 2023 to 181% in 2053, with the hike in interest rates contributing significantly to this increase.
Of course, while rising interest rates are continuing to benefit the countries that own the most U.S. debt, highly leveraged companies are suffering greatly because of the reasons discussed earlier. One such impacted group is office REITs, which have been greatly impacted by the Covid-19 pandemic and many companies focusing on hybrids ways of working rather than demanding staff to return to office full time. The median office occupancy rate has fallen to just 87%, the lowest rate seen since office occupancy started to decline amidst the pandemic. While REITs have historically outperformed other asset classes such as stocks and bonds based from 1992 to 2017, the situation has changed in 2023. While occupancy rates have dwindled, highly leveraged REITs have seen their cashflows and net profits impacted by higher interest rate payments. Property values tend to decline as well when interest rates are higher. This is true globally and not just in the U.S. with UK Office REITs declining 23% YTD on average, and in the last one year, have seen their share prices fall by 31.6%. Similarly, Alexandria Real Estate Equities, Inc. (NYSE:ARE), one of the biggest REIT companies in the world, has seen their average share price fall by nearly 20% YTD alone. Multiple defaults have already occurred in the U.S. real estate sector in 2023 because of rising interest rates and you can learn more by visiting the worst performing REITs in 2023. At the same time, as interest rate hikes are seemingly softening and inflation doesn’t seem out of control as it was in 2022, this could mean that stocks such as Alexandria Real Estate Equities, Inc. (NYSE:ARE) are undervalued and might prove to be good investments, especially since many companies are calling for employees to return to office to some extent.
Similarly, companies in various sectors are also quite sensitive to interest rate hikes, as higher rates increase their liabilities relative to assets, and put pressure on their PE ratios. Telecom companies often can carry large amounts of debt as the business is capital intensive in order to develop the necessary infrastructure required, and AT&T Inc. (NYSE:T), one of the most valuable telecom companies in the world, is the most indebted company in the world, while Verizon Communications Inc. (NYSE:VZ) also makes the top five. Being highly leveraged means that these telecom companies have to account for higher interest payments when interest rates rise, impacting profitability and has contributed to AT&T Inc. (NYSE:T) seeing its share price fall by 24.8% YTD while Verizon Communications Inc. (NYSE:VZ) has seen its stock price fall by nearly 18% in the same time period. At the same time, AT&T Inc. (NYSE:T) has worked on reducing its debt and mentioned this in its Q2 2023 earnings call “Over the past three years, we’ve reduced our net debt by about $20 billion. We also recently transferred $8 billion of pension liabilities through the purchase of insurance annuities. As Pascal will discuss, we’ve addressed the number of one-time and discrete items and now expect to use an increasing amount of our free cash flows after dividends to accelerate our debt reduction efforts. We remain committed to achieving the 2.5 times range for net debt to adjusted EBITDA in the first half of 2025.” On the other hand, many companies also engage in interest rate swaps to hedge against the risk of interest rates rising.
Methodology
To determine the countries that own the most U.S. debt, we visited the U.S. Treasury government website, which has data on U.S. treasury securities being held by countries, with the total debt held by foreign countries amounting to $7.4 trillion, and ranked nations based on how much debt they hold. All securities holdings are as at Jan 2023.
15. France
Total holdings of U.S. treasury securities (in billions): $183.9
France’s history on giving loans to the U.S. can be traced back several centuries to the American Revolution, when a cash-strapped U.S. took loans from France. That relationship has continued to the present day even though France’s U.S. debt ownership has fallen by $50 billion in the past year.
14. Singapore
Total holdings of U.S. treasury securities (in billions): $187.6
Like many nations among the list of countries that own the most U.S. debt, Singapore is a major financial center with many companies operating regional headquarters in the country. The holdings of these countries are considered part of Singapore’s ownership of U.S. debt, which helps explain why such a small country owns so much U.S. debt.
13. Brazil
Total holdings of U.S. treasury securities (in billions): $214.0
Brazil owns the highest U.S. debt in Latin America, mainly because of the security investing in a stable currency offers.
12. Hong Kong
Total holdings of U.S. treasury securities (in billions): $226.8
Hong Kong was one of several countries nervously following the U.S. debt impasse, and must have breathed a sigh of relief when it was resolved towards the end of May 2023, with one of the primary reasons for purchasing U.S. debt being an attempt to maintain its currency peg to the U.S.
11. India
Total holdings of U.S. treasury securities (in billions): $232.0
Surprisingly, India is among the countries which own the most U.S. debt and has increased its holdings over the past year by 16%.
10. Taiwan
Total holdings of U.S. treasury securities (in billions): $234.6
According to the Financial Times, in 2019, Taiwan owned around 14% of the U.S. long-term corporate bonds, and Taiwanese insurers have significantly increased their holdings of U.S. mortgage-backed securities.
9. Ireland
Total holdings of U.S. treasury securities (in billions): $253.4
Ireland has become a tax haven for many U.S. companies, which you can learn more about by visiting the 10 biggest Irish companies. Since these companies mostly have operations in the U.S., they hold large amounts of government securities which is counted in Ireland’s total.
8. Canada
Total holdings of U.S. treasury securities (in billions): $254.1
Canada has increased its U.S. debt ownership from $217 billion in January 2022 to $254 billion in January 2023.
7. Cayman Islands
Total holdings of U.S. treasury securities (in billions): $285.3
The main reason why Cayman Islands hold so much U.S. debt is because of the fact that many major hedge funds are domiciled there, and their international deposits count towards this total. In fact, a various reports suggest that more than half of global hedge funds are domiciled there.
6. Switzerland
Total holdings of U.S. treasury securities (in billions): $290.5
Switzerland has one of the lowest debt to GDP ratios of developed countries in the world, and has a significant investment in U.S. debt. Separately, U.S. bondholders are preparing to sue Credit Suisse, after the bank declared bankruptcy and was taken over by its rival UBS.
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Disclosure: None. 15 countries that own the most U.S. debt is originally published on Insider Monkey.
