Methodology for Estimating Holdings of Treasury Securities in the table “Major Foreign Holders of U.S. Treasury Securities”

May 15, 2006

These estimates of monthly holdings of Treasury securities by country are derived from a combination of monthly data on foreign holdings of short-term Treasury bills and certificates and periodic surveys of holdings of long-term Treasury bonds and notes that are updated using monthly data on foreign net purchases of long-term Treasury securities.  An additional adjustment is made to include monthly holdings of non-marketable Treasury securities. 

Holdings of short-term Treasury Bills and Certificates:  Monthly positions are measured by country on the TIC form BL-2, which reports values of short-term liabilities to foreigners that are held by customers of U.S. banks and brokers/dealers of securities.  The data on short-term Treasury holdings as well as other liabilities to foreigners reported by banks and broker/dealers can be found at: http://www.treas.gov/tic/ticliab.html

Holdings of long-term Treasury securities:  Periodic (annual since June 2002) surveys of foreign holdings of U.S. securities give a starting position for holdings of long-term Treasury securities, by country.  The most recent survey presents holdings as of June 2005; earlier surveys report holdings as of June 2004, June 2003, June 2002, March 2000, and December 1994.  The survey data can be found at: http://www.treas.gov/tic/fpis.html

Because the survey data for holdings of long-term securities are available only periodically and with a considerable processing lag, estimates of positions for more recent periods are constructed by adding data on monthly net purchases (gross purchases less gross sales) of long-term Treasury securities by foreigners to the most recently published survey position.  Data on gross purchases and gross sales by foreigners of long-term securities (from which the net transactions data are calculated) are reported on the TIC form S, and can be found at: http://www.treas.gov/tic/ticsec.html

Holdings of non-marketable Treasury bonds and notes:  A small amount of non-marketable U.S. Treasury bonds and notes are held by selected foreign governments.  Activity in these non-marketable securities is not reported on the TIC forms, but the Major Foreign Holders tables are adjusted to account for changes in holdings of these securities.  More detail on these non-marketable Treasury securities can be found in Treasury Bulletin tables IFS-2 and IFS-3. 

Cautions regarding use of the data.

Country Attribution. Users should be aware that the country attribution of foreign holdings of U.S. securities, including U.S. Treasury securities, is imperfect for two main reasons.  The first reason is that some foreign owners entrust the safekeeping of their securities to institutions that are neither in the United States nor in the owner’s country of residence.  For example, a German investor may buy a U.S. security and place it in the custody of a Swiss bank.  In the periodic surveys of holdings of long-term securities, such a holding typically is recorded vis-à-vis Switzerland rather than Germany.  This “custodial bias” contributes to the large recorded holdings in major financial centers including Belgium, the Caribbean banking centers, Luxembourg, Switzerland, and the United Kingdom. 

In addition, the procedure of adding net transactions to the original survey positions for long-term marketable securities can generate further significant geographic distortions over time.  This is because cross-border transactions take place disproportionately in major international financial centers, and net purchases in those areas do not necessarily reflect acquisitions by investors in those areas.  To illustrate how significant those distortions may be, the Major Foreign Holders tables provide two sets of estimates for each survey date:  one set reflects holdings as of the most recent survey, and the other set is derived from the previous survey with positions estimated forward using transactions data.  For example, the June 2005 survey estimate of Treasury securities held by residents of the United Kingdom is $58.8 billion.  The estimate derived from the June 2004 survey by adding the foreign net purchases over the 12-month period until June 2005 is $140.9 billion.

Valuation of securities. Users should also be aware that the securities estimates in the Major Foreign Holders tables are a hybrid of market and face values.  Foreign holdings of short-term Treasury bills are reported on the TIC form BL-2 at face value.   Holdings of and transactions in long-term Treasury securities are collected at market value.  However, no attempt is made in the estimation process to adjust the long-term data to account for price changes occurring subsequent to the survey or transactions dates.  Holdings of non-marketable securities are included at current value.