UK holdings of US government bonds, known as Treasuries, have almost doubled in the past five years to hit $865bn, making Britain the second-largest holder of US debt. London’s surge in foreign ownership reflects the growing prevalence of hedge funds over central banks as buyers of Treasuries. London has become “America’s asset manager,” according to Gennadiy Goldberg of TD Securities. The surge in UK-based holdings poses a risk for President Trump as hedge funds are more fickle investors than central banks. Foreign hedge funds’ speculative trades in British debt could spark a crisis if highly leveraged funds suddenly exit, warns Bank of England Governor Andrew Bailey. Since April, foreign investors have poured another $630bn into US government debt, defying concerns over Trump’s tax cuts and spending increases. Foreigners’ stakes in US debt have surpassed $9tn, with UK-based holdings growing six times faster than the overall increase since 2015. UK investors now account for over 9% of foreign holdings of US government debt, behind only Japan. China’s share has dropped significantly, but analysts believe much Chinese investment is routed through Belgium. UK-based holders of US debt are not necessarily British buyers, but users of British banks and custodial accounts, according to Marcello Estevão of the Institute of International Finance. The growth in UK’s headline holdings is a result of market structure, not policy.

Read more at Yahoo Finance: Britain’s bond vigilantes target Trump’s America