My pal and financial concept trainer (of me) Jeff Hummel writes lovely responses to varied pals who touch upon financial points.
In a dialogue of Tether, considered one of his pals quoted a supply saying, “Tether is the third largest buyer of three-month US Treasuries and is projected to be the first next year. Tether now owns more US Treasuries than the governments of Germany, the United Arab Emirates (UAE), and Australia.”
Jeff responded:
Thanks to your attention-grabbing remark about Tether. It motivated me to examine your supply for extra particulars. Listed here are some direct quotations from the article: “Tether became the third largest purchaser of three-month US Treasuries after the governments of the United Kingdom and the Cayman Islands in the second quarter of 2024, a press release reveals. . . .Tether Holdings owned $97.6 billion worth of US Treasuries in June 2024, a new high. Hence, Tether now owns more US Treasuries than the governments of Germany, the United Arab Emirates (UAE), and Australia. Hence, Tether is now the 18th largest holder of US Treasury bonds.”
The Treasury points Treasury payments each week, and I can’t discover any authorities information on what number of of these payments have a maturity of three months. This makes the primary sentence I quoted above exhausting to judge. However discover that the subsequent two sentences refer not simply to T-bills but additionally to all Treasury securities held by Tether. So I made a decision to match the $97.6 billion of Treasuries held by Tether with the whole quantity of Treasuries excellent. The information most handy for me to entry are from the earlier quarter, however since authorities debt is sort of at all times rising in each actual and nominal quantities, that biases upward the measure of the relative quantity of Tether holdings.
As of the primary quarter of 2024, the market worth of the whole quantity of publicly held Treasuries excellent was $24,693.7 billion (with a face worth $2.115 billion increased). And this doesn’t embrace the extra $7,053.1 billion of the gross nationwide debt that’s held by different authorities businesses, primarily the Social Safety and Medicare belief funds, which aren’t marketable to the general public and signify solely cash the federal government has loaned to itself after which spent. Thus, Tether’s $97.6 billion quantities to solely 0.395 % of the publicly held U.S. debt. For comparability, the Federal Reserve holds 16.88 %, cash market mutual funds maintain 10.30 %, and industrial banks and different depositories maintain 5.08 %. [Source: Federal Reserve Board, Financial Accounts of the United States (June 2024), p. 119.]
The face worth of the nationwide debt within the type of Treasury payments of all denominations was $6,061.7 billion within the first quarter of 2024. It’s not clear that every one of Tether’s holdings are T-bills as a result of, as your supply factors out, a small quantity of them are within the type of repos or reverse repos with the maturity of the underlying securities unspoken. Once more quoting, “In detail Tether held $80.95 billion in US Treasury bills, $11.287 billion worth of overnight repurchase agreements for US Treasuries, and $997.373 million worth of Term Reserve Repurchase Agreements for US Treasuries, the BDO Italia S.p.A. accounting firm estimates.” Together with the whole of each repos (that are Treasuries loaned by Tether) and reverse repos (that are Treasuries borrowed by Tether) is technically double counting Tether property, however by an quantity that’s minor. So if we rely all these transactions and assume all of them contain T-bills, that will imply that Tether is holding 1.34 % of the excellent quantity of T-bills, admittedly a big proportion for a single agency.
What concerning the article’s comparability with overseas holdings? The full market worth of overseas holdings of all Treasuries has been declining over current years and as of the primary quarter of 2024 they amounted to $8,114.9 billion (32.8 % of the whole publicly held debt). Overseas governments at the moment held lower than half of the quantity of Treasuries held overseas: $3,815.0 billion, of which solely $267.0 billion had been Treasury payments of all denominations. The U.S. doesn’t present a break down by particular person nation of the quantity of overseas authorities versus non-public holdings in order to protect the confidentiality of particular person holders. However German, each authorities and personal, holdings of all Treasuries had been $90.2 billion. [Supply: U.S. Treasury Division, “Table 5: Major Foreign Holders of Treasury Securities.] That comes to only 0.37 percent of the publicly held debt, or 1.13 percent of the debt held abroad. That puts Germany behind eighteen other countries in its holdings of U.S. government debt as of first quarter of 2024. Thus it appears that the statement in the article that “Tether is now the 18th largest holder of US Treasury bonds” was evaluating Tether holdings, not with home debt holders in any respect, however solely with overseas holders.
Right here’s the Wikipedia entry on Tether.
Jeff writes, “This is not to deny that Tether has become a revolutionary and useful part of the financial system. It is essentially a digital bank, with fractional reserves in the form of fiat dollars but with most of its assets in the form of financial investments. It issues what could be described as digital banknotes or deposits that are more liquid than ordinary bank deposits, especially for cross-border transactions and transactions with other crypto. Tether thus offers services that traditional banks cannot provide because of government regulations.”
