Federal Debt Held by Private Market

Expanding from a previous post, it is concerning to observe the increase of public debt monetization by the Federal Reserve. Put differently, the private market holding of the public debt, based on rough estimate, has been on a general decline. As noted from the Table below, the estimated share of debt held by the public as of 2/18/2021 is about 53%, some 8% decline since September 2020. Now, the precision of these amounts are less of a concern, given that by the time this post is published or read, the amounts will have changed. What matters is the trend. And here we are seeing that the additional debt being issued is being gobbled up by the Central Bank at a faster rate when compared to the private market. At the logical extreme, the FRB will at some point be the only buyer in the market. But before that actually happens, expect yields to increase to account for the increase in counterparty risk.

[In billion of dollars] 

*Total Privately Held has been adjusted to reflect FRB holdings, as reported by the FRBNY. February 2021 amounts obtained from US Treasury. Other amounts in Table come from US Treasury report, Table OFS2.