US fixed-income investor ownership and demand Report Interpretation

Overview

This Deutsche Bank report examines who finances the expanding US fixed-income market and how investor demand differs across Treasuries, agency securities and MBS, corporate and foreign bonds, and municipal debt. Its central message is that domestic investors fund much of US Treasury supply while foreign official demand has softened, making investor composition, auction participation and fiscal issuance important market variables.

Core views

The US fixed-income market expanded by $6.8trn over the last four quarters to $62trn outstanding as of Q2 2026. Treasury and agency securities represent about 70% of that market, and Treasury debt has become a substantially larger share of total US fixed income since the Global Financial Crisis. Treasury debt stood at 95% of GDP, compared with 75% before Covid, while non-financial corporate debt and loans declined from a Covid-period peak of 55% of GDP to 41%. The report frames this change as a larger Treasury-financing requirement being absorbed across a changing investor base. Treasury ownership remains broad but is increasingly dependent on domestic sectors. Foreign investors were still the largest category, holding 31.9% of Treasury securities in Q2 2026, versus 41.4% in Q2 2019 and 54.3% in Q2 2007. Mutual funds and ETFs held 20.1%, the Federal Reserve 14.1%, households and hedge funds 9.8%, commercial banks 6.8%, and insurance companies 2.1%. The report notes that the domestic sector funds the bulk of the US budget deficit. Private Treasury holdings are concentrated at maturities of five years or less, while the Federal Reserve retains a substantial share of long-dated Treasuries. Money market funds primarily hold short-term Treasuries and repo, banks' Treasury and agency holdings have risen faster than deposit liabilities in recent years, and the Fed's bond portfolio is rising again through reserve-management purchases. Foreign demand is a key differentiator. The foreign share of Treasuries was 30% in Q2 2026, close to its multi-decade low, while foreign official purchases were flat and foreign private purchases were slowing. Foreign official T-bill holdings declined over the preceding 12 months. The report also notes that the US dollar represented 57.1% of global FX reserves, slightly higher quarter on quarter, with total global FX reserves at $13.1trn in Q1 2026. Federal Reserve custodial holdings for foreign official accounts continued to decline in the latest quarter, and global central banks reduced assets in aggregate over the prior six months. China’s reported Treasury holdings continued to fall, although holdings in Europe, the UK and Canada were rising; China’s FX reserves were $3.4trn as of August 2026. Foreign purchases of US corporate bonds were increasing while purchases of Treasury and agency securities were falling, even as foreign purchases of US equities accelerated on a 12-month basis. Auction evidence shows differentiated demand by maturity and buyer type. Investment funds overtook primary dealers in T-bill auction allotments, and demand for 52-week bills increased. Nominal Treasury coupon auction sizes have remained steady since 2024. Investment-fund allotments in both 2- to 7-year and 10- to 30-year auctions recovered in the most recent quarter. The report nevertheless identifies a weaker bid-to-cover ratio in five-year auctions, while demand for 10- to 30-year auctions was stable. These patterns support its emphasis that fixed-income investors have different price sensitivities and preferred maturities, so the mix of buyers matters as much as aggregate issuance. Ownership differs materially by sector. Commercial banks were the largest holders of agency and GSE-backed debt, owning 24.3% in Q2 2026; mutual funds held 16.6%, the Federal Reserve 13.9%, foreign investors 12.2%, and insurance companies 4.3%. Agency MBS ownership was relatively dispersed, while mortgage activity improved slightly as mortgage rates remained range-bound. In corporate and foreign bonds, insurance companies held 26.8%, the rest of the world 26.0%, and mutual funds and ETFs 23.6%, meaning foreign investors and insurers together owned more than half. In municipal securities and loans, households and hedge funds held 47.9%, mutual funds and ETFs 29.6%, commercial banks 10.8%, and insurers 8.6%. The report also compares broader portfolio allocations. Households, including hedge funds, are heavily overweight equities relative to fixed income; pension funds and mutual funds allocate more than half of assets to equities; and foreign investors have increased US-equity allocations over the past decade. Insurance companies are characterized as overweight credit, while banks hold more Treasuries on their balance sheets than after the Global Financial Crisis. These allocation differences help explain why changes in rates, spreads, liquidity preferences and regulatory conditions can shift marginal demand across Treasury, agency, credit and municipal markets. For the outlook, Deutsche Bank presents two 10-year Treasury yield model estimates: a model incorporating central-bank purchases suggests fair value of about 3.6%, while a market-variable model suggests about 4.65% as of September 11, 2026. It forecasts net Treasury coupon issuance of about $1.5trn in both 2026 and 2027. The fiscal backdrop is central to this supply outlook: interest expense is projected to become a larger share of the US deficit because of high interest rates, while rising outlays and slower revenue growth contribute to the primary deficit. Mandatory spending is expected to grow faster than discretionary spending as net interest also rises; the report notes an average interest rate on public debt of 3.5%.

Analysis framework

The report combines flow-of-funds ownership data, Treasury auction allotments and bid-to-cover measures, maturity profiles, foreign-reserve and cross-border flow data, and sector asset-allocation comparisons. It then relates investor demand and price sensitivity to Treasury issuance, Federal Reserve holdings, fiscal projections and two 10-year Treasury yield-model estimates.

Methodology notes

• Industry AnalysisSupply-demand framework

  Fixed-income supply and investor-demand analysis

  The report compares debt issuance and outstanding supply with ownership, foreign flows, auction participation and sector allocations to assess who absorbs US fixed-income securities.

• Fixed Income and CreditThree-Factor Interest-Rate Decomposition

  10-year Treasury yield model decomposition

  The report presents yield-model estimates, including a decomposition and a model that incorporates central-bank purchases, to show how different drivers can imply different 10-year fair-value estimates.

• Other

  Framework for price elasticity of US fixed-income investors

  The report distinguishes investor groups by their sensitivity to prices and maturity preferences, helping explain why demand can vary across Treasury auction sectors and fixed-income asset classes.

Asset mapping & comparison

Structured mapping from thesis to named assets (strengths, weaknesses, peers, risks).

• US Treasuries

  The principal financing instrument examined; ownership is increasingly supported by domestic investors while foreign demand remains comparatively subdued.

  Strengths

  Foreign investors remain the largest holder category, mutual funds and ETFs are significant holders, and investment-fund auction allotments recovered in the latest quarter.

  Weaknesses

  Foreign ownership is near multi-decade lows; foreign official purchases are flat and foreign private purchases are slowing.

  Comparison

  Foreign ownership was 31.9% in Q2 2026 versus 41.4% in Q2 2019 and 54.3% in Q2 2007.

  Risks

  Large projected coupon issuance and rising fiscal interest costs increase the importance of sustained investor absorption.

• Agency and GSE-backed debt

  Commercial banks are the largest investor category, with ownership also spread across mutual funds, the Federal Reserve and foreign investors.

  Strengths

  Commercial banks held 24.3% of outstanding agency and GSE-backed debt in Q2 2026.

  Comparison

  Commercial-bank ownership was 24.3%, compared with 16.6% for mutual funds, 13.9% for the Federal Reserve and 12.2% for the rest of the world.

• Corporate and foreign bonds

  The report identifies insurers, foreign investors and mutual funds as the core holders of this credit market.

  Strengths

  Insurance companies and foreign investors together own more than half of outstanding corporate and foreign bonds.

  Comparison

  Insurance companies held 26.8%, the rest of the world 26.0%, and mutual funds and ETFs 23.6% in Q2 2026.

• Municipal securities and loans

  The market is predominantly financed by households and hedge funds, with mutual funds as the second-largest holder group.

  Strengths

  Households and hedge funds accounted for 47.9% of outstanding municipal securities and loans in Q2 2026.

  Comparison

  Mutual funds and ETFs held 29.6%, commercial banks 10.8%, and insurance companies 8.6%.

Key data

• US fixed-income securities outstanding$62trnAs of Q2 2026; the market grew by $6.8trn over the prior four quarters.
• Treasury debt-to-GDP95%Current level, up from 75% before Covid.
• Foreign share of US Treasuries30%Q2 2026, close to the multi-decade low of 29% in Q3 2023.
• Foreign share of US Treasuries by holder table31.9%Rest-of-world ownership in Q2 2026.
• Commercial-bank share of agency and GSE-backed debt24.3%Q2 2026; the largest investor category.
• Household and hedge-fund share of municipal securities and loans47.9%Q2 2026.
• 10-year Treasury fair value~3.6%Estimate from the model accounting for central-bank purchases.
• 10-year Treasury fair valuearound 4.65%Market-variable model estimate as of September 11, 2026.
• Treasury net coupon issuance forecast~$1.5trnForecast for each of 2026 and 2027.

Impact & implications

The report indicates that the sustainability and pricing of Treasury financing depend on a diversified but shifting buyer base. Slower foreign demand, evolving Federal Reserve holdings, differing maturity preferences and strong domestic participation make auction conditions and sector allocation changes especially relevant as Treasury coupon issuance remains large.

What to watch

• Foreign official and private purchases of US Treasuries, including foreign official T-bill holdings and Federal Reserve custodial holdings.
• Treasury auction demand, especially bid-to-cover ratios and allotments across bill, intermediate and long-dated maturities.
• Federal Reserve reserve-management purchases and the maturity composition of its Treasury holdings.
• Treasury coupon issuance, interest outlays and the evolution of the primary deficit.