China’s dominance in U.S. Treasury holdings continues to fade as the United Kingdom overtakes the Asian giant for the first time since 2000, signaling a major shift in global financial power dynamics.
At a Glance
- Foreign holdings of U.S. Treasuries reached a record $9.05 trillion in March, increasing by over $233 billion from February
- The UK surpassed China as the second-largest holder of U.S. Treasuries, with $779 billion compared to China’s $765 billion
- China has reduced its Treasury holdings for five consecutive months as part of a strategy to diversify its foreign exchange reserves
- Japan remains the largest foreign holder with $1.13 trillion in U.S. Treasury securities
- Treasury Secretary Scott Bessent argues liquidating U.S. Treasuries would harm China’s economy by strengthening the RMB
Record Foreign Ownership Amid Shifting Global Positions
Foreign investors continue to demonstrate strong confidence in U.S. government debt despite global economic uncertainties. March data revealed foreign holdings of U.S. Treasuries reached an unprecedented $9.05 trillion, marking the third consecutive month of increases. This represents a substantial 12% increase compared to the same period last year, underscoring the enduring appeal of U.S. sovereign debt as a safe haven for international investors seeking stability in an increasingly volatile global marketplace.
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Perhaps most notably, the latest Treasury data reveals a significant reshuffling among top foreign holders, with the United Kingdom overtaking China for the second position – a dynamic not seen since 2000. Japan maintains its position as the largest foreign holder with $1.13 trillion in Treasury securities, while the UK now holds $779 billion, edging past China’s reduced holdings of $765 billion. This shift reflects broader changes in international economic relationships and reserve management strategies among major economies.
China’s Declining Treasury Holdings
China’s retreat from U.S. Treasuries represents a dramatic reversal from its peak position. Once the dominant foreign holder of U.S. government debt with holdings exceeding $1.3 trillion in 2011, China has now fallen to third place. March data showed China had net sales of $27.6 billion in long-term U.S. debt, marking the fifth consecutive month of reductions. This consistent drawdown is part of a deliberate strategy to diversify its massive foreign exchange reserves away from dollar-denominated assets.
“If they started selling Treasuries, they’d have an effect on the price, But more importantly, they accumulate dollars, and what are they gonna do with the dollars?”, said Treasury Secretary Scott Bessent.
The timing of China’s most recent reduction is particularly noteworthy, occurring in March before the escalation of trade tensions with the United States. Chinese holdings decreased by $18.9 billion to $765.4 billion, reversing increases seen in January and February. This reduction happened prior to the market volatility triggered by President Trump’s tariff announcements in April, which caused a sharp sell-off in U.S. Treasuries and drove yields higher across various maturities.
Economic Implications and Strategic Considerations
While some observers have speculated about China potentially “weaponizing” its Treasury holdings during periods of heightened tensions, U.S. Treasury Secretary Scott Bessent has dismissed such concerns as economically counterproductive for China. A wholesale liquidation of U.S. debt would create a paradoxical challenge for Beijing by potentially strengthening the Chinese yuan (RMB), which would directly undermine China’s export-driven economic model that relies on maintaining a relatively weak currency.
“So if they sell Treasuries, then they would have to sell RMB, and it would strengthen their currency, and they’ve been doing just the opposite, They’ve had a weak RMB, or Yuan, policy. So, it really serves no purpose for them to weaponize Treasuries.”, added Bessent.
The reduction in China’s Treasury holdings is occurring against a backdrop of broader efforts to address long-standing trade imbalances with the United States. Recent developments include an agreement to reduce some tariffs, temporarily easing economic tensions between the world’s two largest economies. However, structural issues remain, including China’s shift toward diversifying its reserves into other assets like U.S. agency bonds and gold – a move that analysts view as both an economic hedge and a strategic reduction in financial dependence on dollar-denominated assets.
Market Volatility and Future Outlook
The record foreign holdings in March predated significant market turbulence that emerged in April. President Trump’s tariff announcements sparked a sharp sell-off in Treasuries, though a subsequent 90-day pause for most trading partners helped stabilize the market. Adding to these pressures, Moody’s Ratings downgraded the U.S. government’s credit rating, causing Treasury bond yields to rise further and reflecting growing concerns about America’s fiscal position and debt management policies.
Despite these challenges, foreign investors have maintained their overall exposure to U.S. sovereign debt, with March data showing a second consecutive increase in foreign purchases. This continued demand suggests international confidence in the relative safety and liquidity of U.S. Treasuries compared to other investment options. As global economic uncertainties persist, including inflation concerns and geopolitical tensions, the composition of foreign Treasury holdings will remain a crucial indicator of shifting international financial relationships and reserve currency preferences.
