The past few months have produced a strange contrast in global markets. Headlines warn that China is cutting back on US treasuries while the dollar slides and confidence in America is questioned.
At the same time, hard data shows foreign ownership of US Treasuries at record levels.
Both statements are true, although they describe very different parts of the same system.
What is changing is not whether the US can fund itself, but who is doing the funding and under what conditions.
China steps back, but not in the way headlines suggest
As of the end of 2025, China’s holdings of US Treasuries have fallen to roughly $680 billion, according to US Treasury data, down from more than $1.3 trillion at their peak in the early 2010s.
That decline has been steady for years and did not start with recent political tensions or election cycles. It indicates long-running decisions around reserve diversification and domestic financial risk.
Source: Bloomberg
The latest development has been guidance from Chinese regulators to large domestic banks to limit or reduce their exposure to US government bonds.
Many have perceived the headline as a catastrophic scenario, but the reasoning is straightforward.
US Treasuries are more volatile than they were a decade ago, and a weaker dollar amplifies losses when returns are measured in yuan.
For banks that must manage capital ratios and earnings stability, holding large foreign bond portfolios has become less attractive.
It’s also worth noting that this guidance does not apply to China’s official state reserves, but rather to commercial banks.
That distinction is often lost in news coverage, although it matters for scale.
Banks are price-sensitive and short-term focused. State reserves operate on a different horizon. China is reducing exposure at the margin, but it’s not exactly exiting the market.
Japan keeps buying for structural reasons
Japan now sits at the top of the foreign holder rankings with more than $1.2 trillion in US Treasuries. Recent data show Japanese holdings rising.
This has less to do with confidence in US politics and more to do with domestic constraints.
Japanese yields remain low by global standards, even after recent adjustments. Local institutions face limited alternatives that combine liquidity, scale, and positive yield.
US Treasuries still meet those requirements. Currency risk is actively managed through hedging, which Japanese investors have done for decades.
As a result, Japan’s behavior looks almost opposite to China’s. One is trimming exposure due to balance sheet concerns.
The other continues to add because the trade still works. That alone undermines the idea of a coordinated foreign pullback from the US.
Source: Bloomberg
Europe looks like a buyer, but often acts as a conduit
The UK and Belgium have climbed rapidly up the list of reported Treasury holders. Belgium’s holdings have increased several times over since 2017. At face value, this looks like strong European demand for US debt.
In reality, much of this reflects custody rather than ownership. London and Brussels host large clearing and settlement systems used by global investors.
Assets recorded there often belong to institutions based elsewhere, including in Asia. When holdings move into these accounts, the country label changes even though the economic owner does not.
Some of what appears to be China selling is better described as China relocating assets. The bonds remain in the Treasury market, although they now sit behind European custodians.
Private capital becomes the dominant buyer
The most important change is not geographic, but institutional. Foreign governments are no longer the primary marginal buyers of US Treasuries.
Private investors are.
According to US Treasury data, foreign ownership of US Treasuries reached a record above $9.4 trillion in late 2025. That increase occurred even as some official holders reduced exposure.
The gap was filled by asset managers, hedge funds, and pension funds.
These buyers approach the market differently. They care about yield, liquidity, and relative value.
They hedge currency risk when it makes sense and reduce exposure when returns compress.
They are willing to hold large positions, although they are also quicker to react to changes in market conditions.
This shift helps explain why auctions continue to clear smoothly despite heavy issuance.
Demand is present, although it now comes from investors who respond to prices rather than policy.
The dollar ties the whole story together
The dollar’s recent decline sits at the center of these moves. For foreign investors, holding US Treasuries is a combined bet on US interest rates and the US currency.
When the dollar weakens, the local currency value of those bonds falls even if coupons are paid on time.
That effect is small in any given week, although it compounds over time. For banks and reserve managers with strict risk frameworks, it changes behavior.
For private investors, it raises hedging costs and lowers expected returns.
This explains why some large European asset managers like Amundi have publicly reduced dollar exposure while others remain active buyers. It also explains why China is more sensitive than Japan.
Different currencies, different hedging structures, and different domestic pressures lead to different decisions.
The result is a Treasury market that remains well funded but more responsive to sentiment.
Ownership is broad and deep, although it is less anchored by institutions that buy regardless of price.
America is still being financed, but by a different crowd
The US continues to borrow at scale without signs of funding stress. Foreign demand remains strong in aggregate. What has changed is the identity of the buyer.
Central banks and sovereign institutions once acted as slow-moving holders with long horizons.
Private capital now plays a larger role. That brings flexibility and depth, while also increasing sensitivity to changes in yields, currency moves, and risk appetite.
China’s selling does not mean the world is selling.
It means one large player is adjusting exposure while many others are increasing it for their own reasons.
The Treasury market absorbs those flows because it remains unmatched in size and liquidity.
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