In 2004, for the first time, foreigners owned more than half of privately held U.S. public debt, mostly in the form of marketable U.S. Treasury securities. In internal discussions at the U.S. Treasury Department, the increase in foreign appetite for Treasury securities represented global investors' vote of confidence in the U.S. economy. Many in the Treasury believed that broad foreign ownership helped lower Treasury borrowing costs. But there was an increasing uneasiness among many in Washington's power circle about U.S. dependence on foreign loans. This case describes the meeting between the Treasury and the Treasury Borrowing Advisory Committee (TBAC) of the Bond Market Association on August 3, 2004, in which the Treasury gave the Committee the charge to discuss, among other issues, the level of foreign ownership. Written for a first-year course entitled "Global Economies and Markets," this case describes the market for U.S. Treasury securities, giving details on market institutions and market participants, and some of the reasons U.S. Treasury securities serve as benchmarks and hedging instruments. As the third case in the module on global markets, it is used to describe a market that is closest to the ideal of a perfectly competitive market and to illustrate the relationship between market institutions and structure on the one hand, and market liquidity and efficiency on the other.
