Jake Miller
US Treasuries have long been considered a safe haven long-term investment for many investors. Foreign ownership of US government debt stands at 24%, with Japan, China, and the UK being the top three largest holders, followed by Belgium, Luxembourg, and Switzerland. EU countries have increased their exposure to US debt since 2020, but their holdings are small relative to their total assets. European investors can purchase US Treasuries through regulated brokerages that offer Treasury ETFs, such as eToro, allowing them to diversify their portfolios with US-backed assets. However, there are various fees and tax implications to consider, including bid-ask spreads, management fees, currency conversion fees, and capital gains taxes.
| Characteristics | Values |
|---|---|
| How European investors can buy US Treasuries | Through regulated brokerage platforms like eToro, which offer Treasury ETFs |
| How to diversify portfolios | By investing in Treasury ETFs |
| Hidden costs | Bid-ask spread, management fees, currency conversion fees, taxes on capital gains or dividends, and financial transaction tax |
| Major foreign holders of US Treasury securities | Japan, China, the United Kingdom, Belgium, Luxembourg, Switzerland, and the Cayman Islands |
| Foreign ownership of US government debt | Nearly 24% |
| European exposure to US debt | Small but has increased since 2020 |
| US Treasuries as an investment | Considered a "safe haven" due to the financial stability and low risk |
| Currency risk | Currency conversion is required, introducing volatility and skewing the risk-return ratio |
| Buying US bonds | European citizens can buy US bonds on the secondary market through brokers |
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What You'll Learn
How to buy US treasuries in Europe
As a European investor, you can buy US treasury bonds in the secondary market. You will need a brokerage account to do so. Interactive Brokers is one platform that offers this service.
You can also buy US treasuries through regulated brokerages that offer Treasury ETFs (exchange-traded funds). eToro is one such platform, offering a wide range of popular treasuries like the iShares TLT, SPDR, and BIL.
Before investing, it is important to understand the risks involved. Trading treasury bonds can result in losses, just like any other asset. You should also be aware of the various fees that may be incurred, such as bid-ask spread, management fees, and currency conversion fees.
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Currency conversion fees
There are two main types of currency conversion fees. The first is a fee charged by the credit card processor, which is typically around 1% of the transaction amount. This fee appears on the cardholder's statement after the purchase has been made, so the exact cost is not known until later. If the credit card does not charge a foreign transaction fee, the card issuer may be responsible for this currency conversion fee. The second type of currency conversion fee is called dynamic currency conversion (DCC), which is a separate fee charged by merchants for converting purchases into the customer's home currency. This fee is typically set by the merchant's payment service provider and includes a markup that benefits both the provider and the merchant. DCC fees can be quite high, often ranging from 1% to 12% of the transaction amount.
In addition to currency conversion fees, there may also be foreign transaction fees associated with international purchases. These fees are typically charged by the card issuer and can range from 2% to 3% of the transaction amount. In some cases, the foreign transaction fee and currency conversion fee may be combined into a single charge.
To avoid high currency conversion fees, it is generally recommended to reject dynamic currency conversion and pay in the local currency when given the option. Additionally, using a travel credit card that does not charge foreign transaction fees can help to minimize or eliminate these extra costs. Understanding the fee structure of your credit card and reviewing your credit card policies before travelling internationally can also help you to avoid unnecessary expenses.
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Brokerage accounts
European investors can invest in US Treasuries through regulated brokerage platforms that offer Treasury ETFs, such as eToro. Brokerage accounts allow investors to diversify their portfolios with secure, US-backed assets. These platforms offer a wide range of popular treasuries, including iShares TLT, SPDR, and BIL, and provide access to over 3,000 stocks, ETFs, and other assets.
When investing in US Treasuries through brokerage accounts, it is important to understand key metrics such as bond duration and fee structures. For example, while the bid-ask spread is usually minimal, it can be more significant for less liquid ETFs. Additionally, some specialised Treasury ETFs may charge fees for active portfolio management, although this is rare as Treasury ETFs are often passively managed. Currency conversion fees may also apply if the investor's account is not in US dollars.
It is worth noting that US Treasuries are considered a safe investment due to their minimal risk of default, making them attractive to investors. They are government-backed and offer low yields compared to other fixed-income securities.
In terms of purchasing US Treasuries, investors can buy marketable securities through non-competitive or competitive bids. Non-competitive bids do not specify a desired yield or price and are typically used by small investors or those unconcerned with the exact yield or price. Competitive bids, on the other hand, require working through a bank, broker, or dealer, and investors specify the discount rate, yield, or discount margin they will accept.
Overall, brokerage accounts offer European investors a straightforward and accessible way to invest in US Treasuries, providing an opportunity to diversify their portfolios with secure, US-backed assets.
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US treasuries as a safe investment
US Treasury securities are considered one of the safest investments available. They are backed by the full faith and credit of the US government, which guarantees to repay the principal and interest on these securities. This makes them a low-risk option for investors. Treasury securities have a fixed interest rate and a set maturity date, providing investors with predictability and stability. They also have low inflation risk because interest rates are set by the market and adjusted for inflation.
Treasury bills, or T-bills, are issued with maturities of 52 weeks or less. They are issued at a discount and redeemed at face value, making them a low-risk investment option. T-bills are short-term government bonds that are typically sold in durations of 4, 8, 13, 17, 26, or 52 weeks. This short-term nature allows investors to quickly access their funds and reinvest them in other opportunities. T-bills are also commonly used in portfolio diversification, as they provide stability and counterbalance more volatile assets, reducing overall risk.
Treasury notes are issued with maturities of 2 to 10 years. Interest is paid every 6 months, providing investors with a steady stream of interest payments before the principal amount is repaid. This medium-term nature of T-notes allows for flexibility in investment planning, as investors can choose to hold onto the notes until maturity or sell them.
US Treasuries are also attractive to investors because of their minimal risk of default. They usually offer lower yields than other fixed-income securities, but their low risk makes them a safe investment option. The price of Treasury securities and market interest rates have a significant impact on yields. When market interest rates rise, the price of Treasury securities falls, resulting in a higher yield.
European investors can easily invest in US Treasuries through regulated brokerages that offer Treasury ETFs, giving them a way to diversify their portfolios with secure, US-backed assets. Some popular regulated brokerage platforms available in Europe include eToro and Interactive Brokers. By using these platforms, European investors can access a wide range of popular treasuries without having to cross the Atlantic. However, it is important for European investors to be aware of potential fees, such as bid-ask spreads, management fees, currency conversion fees, and taxes on capital gains or dividends.
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US government debt owned by foreign countries
US government debt is owned by foreign countries, and foreign investors can buy US Treasuries through regulated brokerages that offer Treasury ETFs. These financial instruments are pegged to the US government and provide a way for investors to diversify their portfolios with secure, US-backed assets. While the US government does not disclose the exact amount of US debt held by foreign countries, it does provide monthly data on holdings of Treasury bonds and notes. As of April 2024, the five countries owning the most US debt are Japan ($1.1 trillion), China ($749 billion), the United Kingdom ($690.2 billion), Luxembourg ($373.5 billion), and Canada ($328.7 billion).
Foreign ownership of US debt has introduced several risks that can impact economic stability. For example, foreign entities holding large amounts of US Treasury securities could potentially influence US economic policies. They might also create instability by rapidly selling off their holdings, raising interest rates and disrupting financial markets. The US is vulnerable to shifts in foreign economic policies, global financial crises, and changes in investor sentiment, which can lead to decreased purchases or accelerated sell-offs of US debt, affecting US interest rates and financial stability. Additionally, the reliance on external financing to cover US deficits creates a trade deficit, with the US importing more than it exports, contributing to the national debt and potential economic imbalances.
European investors can purchase US Treasuries through regulated brokerage platforms like eToro, which offer a diverse range of Treasury ETFs. By understanding key metrics like bond duration and fee structures, European investors can make informed decisions to diversify their portfolios. However, there may be additional costs to consider, such as bid-ask spreads, management fees, currency conversion fees, and taxes on capital gains or dividends.
Overall, foreign ownership of US government debt, including by European investors, has been a significant aspect of the US economy, with potential implications for economic stability and policy influence.
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Frequently asked questions
Yes, European investors can invest in US Treasury Bills. However, they can only buy them on the secondary market and will need a brokerage account to do so.
Europeans can buy US Treasury Bills through regulated brokerages that offer Treasury ETFs, such as eToro.
US Treasuries have long been considered a "safe haven" investment. For the last ten years, European funds have supported the US Treasury market, and the flow of funds from Europe to America continues. This is due to uncertainties connected with the economic and political health of Europe.
