US national debt has surpassed $40 trillion as Treasury financing needs grow, with hedge funds using Cayman-based investment vehicles emerging as significant buyers of government securities. Official data show Japan holds $1.1 trillion in US securities, while the Cayman Islands ranks fifth with $460.1 billion. A Federal Reserve study, however, found Cayman hedge funds held about $1.85 trillion in Treasury positions at the end of 2024, in part because bonds pledged as collateral for loans can disappear from official foreign-holder statistics. Cayman holdings of Treasury bills rose 22% in one month to a record $211.2 billion in July, according to FRED data. Basis trades helped hedge funds absorb large Treasury issuance, but the leverage involved could create stability risks if bond markets reverse suddenly. President Donald Trump said in a TIME interview published Thursday that stronger growth and certain levels of inflation could reduce the debt burden, while arguing that higher interest rates were more damaging than inflation. Inflation can reduce the real value of existing fixed-rate debt, but higher inflation may also push Treasury yields higher and increase the cost of new borrowing and refinancing. The Congressional Budget Office estimates that higher inflation and interest rates can significantly raise federal interest costs. Some traders on X claim China is buying Treasuries through Cayman structures, but the Federal Reserve study names no Chinese buyers.