My friend and financial theory teacher (my) Jeff Hummel has written beautiful responses to various friends who comment on financial issues.
In a discussion about Tether, one of his friends quoted a source as saying, “Tether is the third largest buyer of three-month U.S. Treasuries and is expected to become number one next year.” ” he said. Tether currently owns more U.S. Treasuries than the governments of Germany, the United Arab Emirates (UAE), and Australia. ”
Jeff replied:
Thank you for your interesting comments regarding Tether. This prompted me to check the source to find out more. Below is a direct quote from the article. “Tether became the third-largest purchaser of three-month U.S. Treasuries in the second quarter of 2024, behind the UK government and the Cayman Islands government, a press release revealed.” . Tether Holdings held $97.6 billion worth of U.S. Treasuries in June 2024, a new record high. Therefore, Tether currently owns more US Treasuries than the governments of Germany, the United Arab Emirates (UAE), and Australia. Therefore, Tether is now the 18th largest holder of U.S. Treasuries. ”
The Treasury issues Treasury bills every week, but I can’t find any government data on how many Treasury bills have a three-month maturity. This makes the first sentence quoted above difficult to evaluate. However, note that the next two sentences refer not only to T-bills, but also to all Treasury securities held by Tether. So I decided to compare the $97.6 billion in U.S. Treasuries that Tether owns with the total amount of U.S. Treasuries outstanding. The most convenient data for me to access is from the last quarter, but government debt is almost always increasing in both real and nominal amounts, so the measure of the relative amount of Tether holdings is biased upwards. .
As of the first quarter of 2024, the total market value of publicly held government bonds outstanding was $24,693.7 billion (face value was $2,115 million higher). And that doesn’t include an additional $7.531 trillion in national debt held by other government agencies, primarily the Social Security and Medicare trust funds. These funds cannot be marketed to the public and represent only money lent by governments to themselves. I spent it. Therefore, Tether’s $97.6 billion is only 0.395% of US public debt. For comparison, the Federal Reserve holds 16.88%, money market mutual funds hold 10.30%, and commercial banks and other depository institutions hold 5.08%. [Source: Federal Reserve Board, Financial Accounts of the United States (June 2024), p. 119.]
The face value of the national debt in the form of Treasury bills for all denominations was $6,061.7 billion in the first quarter of 2024. As Tether sources have noted, it is not clear whether the holdings are entirely in Treasury bills. Some of these are in the form of repos or reverse repos, and the maturity of the underlying securities is not stated. To quote again: “According to BDO Italian SpA accounting firm estimates, in detail, Tether has acquired $80.95 billion worth of U.S. Treasury securities, $11.287 billion worth of overnight U.S. Treasury repurchase agreements, and $999.737 billion worth of overnight U.S. Treasury repurchase agreements. $3,000 worth of U.S. Including the sum of both repos (treasury bonds lent by Tether) and reverse repos (treasuries borrowed by Tether) technically doubles Tether assets. It will be counted, but the amount will be small. So if we count all these transactions and assume they all involve T-bills, Tether holds 1.34% of the outstanding T-bills, which is clearly a simple This represents a large proportion for a company.
What about the comparison with overseas holdings in the article? The total market value of all U.S. bonds held overseas has been decreasing in recent years, reaching $8,114.9 billion (32.8% of total public debt) as of the first quarter of 2024. Foreign governments at the time held $3.815 trillion in U.S. Treasuries, less than half of their foreign holdings, of which only $267 billion was in all-denominational Treasury securities. The United States does not release a breakdown of foreign government and private holdings by country to protect the confidentiality of individual holders. However, Germany’s government and private debt holdings were $90.2 billion. [Source: U.S. Treasury Department, “Table 5: Major Foreign Holders of Treasury Securities.] This corresponds to just 0.37% of public debt and 1.13% of foreign debt. This leaves Germany behind 18 other countries in holdings of US government debt as of the first quarter of 2024. Therefore, the statement in the article that “Tether is currently the 18th largest holder of U.S. Treasury bonds” seems to be a comparison of Tether holdings, not a comparison. It has nothing to do with domestic bondholders, but only with foreign bondholders.
Here is the Wikipedia entry about tether:
Jeff writes: “This is not to deny that Tether has become a revolutionary and useful part of the financial system. Although it is essentially a digital bank, with fractional reserves in the form of fiat dollars, Most of its assets are in the form of financial investments, especially. Tether thus issues digital banknotes or deposits that are more liquid than regular bank deposits for cross-border transactions and transactions with other cryptocurrencies. We provide services that banks cannot provide.”
