US Treasuries

What it is

US Treasuries are debt obligations of the federal government, issued by the US Department of the Treasury to fund annual deficits and refinance maturing debt. The market spans five instruments: bills (4 weeks to 52 weeks, sold at a discount and repaid at face value at maturity), notes (2, 3, 5, 7, and 10 years, paying semi-annual interest), bonds (20 and 30 years, semi-annual interest), Treasury Inflation-Protected Securities (TIPS, with principal adjusted to changes in the US Consumer Price Index, in 5, 10, and 30-year maturities), and Floating Rate Notes (2 years, quarterly interest tied to the 13-week bill discount rate). All are backed by the full faith and credit of the United States government, which has never missed a scheduled payment. The Treasury sells new securities through regular competitive auctions; roughly 24 designated primary dealers, approved by the Federal Reserve Bank of New York, are required to bid at every auction and provide secondary-market liquidity. The 10-year Treasury yield prices US mortgage rates, corporate credit spreads, and sovereign borrowing costs worldwide, making it the global system's central risk-free benchmark.

History

The US federal government began issuing bonds to finance the Revolutionary War. Alexander Hamilton's 1790 debt consolidation plan retired state war debts at par, establishing Treasury credit as a federal public good. The modern competitive auction system for bills dates to 1929. During World War II, the Federal Reserve held Treasury yields below 2.5% by agreement with the Treasury; the Fed-Treasury Accord of March 1951 ended that ceiling and restored Federal Reserve independence. Inflation in the late 1970s drove the 10-year yield above 15% by September 1981. After the 2008 financial crisis, the Federal Reserve began large-scale Treasury purchases, with its holdings peaking above US$5 trillion by 2022; from March 2022 the Fed began quantitative tightening to shrink that portfolio.

Current state

As of Q4 2025, US Treasury securities outstanding totaled US$30.3 trillion, a 7.0% year-on-year increase, making the market the world's largest sovereign debt pool by volume. Bills account for about 21.6% of outstanding debt, a proportion that rose during the 2023-2025 issuance shift toward the short end. The US government spent approximately US$4.9 trillion in fiscal year 2026 through mid-year, sustaining heavy auction volumes. Japan and China remain the largest foreign official holders through early 2026, together holding roughly US$2 trillion, though both have been net sellers in recent quarters, contributing to yield volatility. The 10-year yield reached approximately 4.6 to 4.7% by late June 2026, pricing the rate path under Kevin Warsh's Federal Reserve, where 9 of 18 FOMC members project at least one rate hike before December 2026. The 2025 debasement trade, the bet that US deficits would erode dollar purchasing power, reversed sharply as markets priced a more hawkish rate environment. Tokyo's June 2026 core CPI adds to Bank of Japan policy uncertainty, with a normalizing Bank of Japan raising the relative return on yen assets and reducing the incentive to hold US Treasuries.

Relationships

The Federal Reserve is the US Treasury's most consequential counterpart in markets: the New York Fed desk buys and sells Treasuries to implement monetary policy, and the Fed's rate stance directly drives the yield curve. A hawkish Fed repricing raises Treasury yields, strengthens the US dollar, and tightens global dollar-denominated credit. The yen's slide to multi-decade lows in mid-2026 partly reflects the gap between US Treasury yields and Bank of Japan rates. Foreign central banks hold Treasuries as their primary reserve asset; the US Treasury's TIC data track those holdings monthly, making them an early indicator of geopolitical shifts in reserve management.

What to watch

The September 2026 FOMC meeting is the near-term catalyst: a rate hike would extend the high-yield environment and reprice Treasury duration risk. Congressional Budget Office projections on the deficit trajectory will determine net issuance volumes for the rest of fiscal year 2026. Japan's willingness to continue buying at Treasury auctions remains a structural variable, given Bank of Japan normalization and the yen's trajectory. Whether foreign official holders continue their net-selling trend or return as buyers is the key TIC data question for the second half of 2026.