The global markets have experienced a strange contrast over the past few months. Headlines warn of China’s reduction in US Treasury bonds, while the dollar is falling and America’s confidence is being questioned.
Data shows that foreign ownership of US Treasuries is at record levels.
Both statements are true even though they describe different parts of the system.
The question is no longer whether the US can finance itself, but rather who is funding it and under what conditions.
China steps back but not as headlines claim
According to US Treasury data as of the end 2025, China’s holdings of US Treasuries will have fallen to approximately $680 billion. This is down from over $1.3 trillion in early 2010.
This decline has been consistent for years, and was not caused by recent political tensions or elections. It shows that decisions have been made for years about reserve diversification and financial risk in the domestic market.
The latest development is the guidance given by Chinese regulators to domestic large banks to limit their exposure to US Government Bonds.
Many people have interpreted the headline as a catastrophe scenario, but it is not.
US Treasuries have become more volatile in the past decade, and a weaker yuan amplifies losses when measured in yuan.
Large foreign bond portfolios are less attractive to banks who must manage capital ratios, earnings stability and manage capital ratios.
This guidance does not apply, however, to China’s official reserves. It only applies to commercial banks.
The news media often ignores this distinction, even though it is important for scale.
Banks are highly price-sensitive, and they tend to be short-term oriented. State reserves have a different outlook. China is reducing its exposure to the market, but not completely.
Japan continues to buy for structural reasons
Japan is now the largest foreign holder of US Treasury bonds, with more than 1.2 trillion dollars. Recent data shows that Japanese holdings are increasing.
This has more to do than anything else with domestic constraints.
Even after recent adjustments, Japanese yields are still low by global standards. Local institutions have limited options that combine scale, liquidity, and a positive yield.
US Treasuries continue to meet these requirements. Currency risk is actively managed by hedging. Japanese investors have been doing this for decades.
Japan’s behavior is almost the opposite of China’s. One is to reduce exposure due balance sheet concerns.
The trade continues to work, so the other continues to add. This alone undermines the idea that the US is pulling back from foreign trade.
Europe may look like a buyer but is often a conduit
The UK and Belgium are rapidly climbing the list of reported Treasury Holders. Belgium’s holdings are up by several times since 2017. This looks at first glance like a strong European demand for US bonds.
In reality, this is largely a matter of custody and not ownership. London and Brussels are home to large clearing and settlement systems that are used by global investors.
Assets listed there are often owned by institutions located elsewhere, including Asia. The country label is changed when holdings are moved into these accounts even though the economic owner remains the same.
What appears to be China’s selling could better be described as China’s relocating assets. The bonds are still in the Treasury market but they are now behind European custodians.
Private capital becomes the dominant buyer
The most important change is not geographical, but institutional. Foreign governments are not the primary marginal buyers for US Treasuries.
Private investors are.
According to US Treasury statistics, foreign ownership of US Treasuries had reached a record high of over $9.4 trillion by the end 2025. This increase occurred despite some official holders reducing their exposure.
Asset managers, hedge funds and pension funds filled the gap.
These buyers approach the markets differently. These buyers are concerned with yield, liquidity and relative value.
When it makes sense, they hedge currency risks and reduce exposure when returns are compressed.
They are willing to take large positions but are also quick to react to changes on the market.
This shift helps to explain why auctions continue despite heavy issuance to clear smoothly.
Demand is still present, but it comes now from investors who are more interested in prices than policy.
The dollar is the key to the story
These moves are largely driven by the recent decline of the dollar. Holding US Treasuries for foreign investors is a bet on US interest rate and the US dollar.
Even if coupons are paid in full, the value of these bonds will fall when the dollar weakens.
The effect is not large in a single week, but it becomes more pronounced over time. It changes behavior for banks and reserve managers who have strict risk frameworks.
Private investors will see a rise in hedging expenses and a decrease in expected returns.
This explains why some large European Asset Managers like Amundi have reduced their dollar exposure publicly while others remain active purchasers. It also explains the fact that China is more sensitive to dollar fluctuations than Japan.
Different currencies, different hedging strategies, and different pressures at home lead to different decisions.
The result is that the Treasury market remains well-funded but is more responsive to sentiment.
The ownership is wide and deep. However, it is less anchored in institutions that buy at any price.
America is still financed but by a new crowd
The US continues to borrow in large amounts without showing signs of financial stress. Foreign demand remains strong in aggregate. What has changed is who is buying.
In the past, central banks and sovereign institutions acted as long-term holders with slow movements.
Private capital plays a greater role now. This brings flexibility and depth while also increasing sensitivity in terms of changes in yields and currency movements, as well as risk appetite.
China’s sales does not mean that the world is also selling.
This means that one large player adjusts exposure, while many others increase it for their own reasons.
The Treasury market absorbs these flows because it is unmatched in terms of size and liquidity.
This post China is “selling America” but the rest of world is still buying can be modified as new developments unfold.
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