China and Japan Cut US Treasury Holdings as Foreign Demand Slows

Foreign investors reduced their holdings of U.S. government debt in March, according to data released by the U.S. Treasury Department, as rising bond yields and geopolitical uncertainty weighed on global markets.

Total foreign holdings of U.S. Treasuries fell to $9.349 trillion at the end of March from a record $9.487 trillion in February, a monthly decline of about 1.5 percent.

Japan, the largest foreign holder of U.S. Treasuries, reduced its holdings by nearly $48 billion to $1.192 trillion. China cut its holdings by about $41 billion to $652.3 billion, the lowest level since September 2008. 

Despite the decline, China remains the third-largest reported foreign holder of U.S. Treasuries.

The United Kingdom, which is often used as a custody center for international investors, increased its holdings to about $927 billion, making it the second-largest reported holder.

The March decline came during a period of heightened market volatility linked to geopolitical tensions in the Middle East, including the conflict in Iran. Rising oil prices during that period increased concerns that inflation could remain elevated for longer than expected.

Those concerns contributed to higher U.S. Treasury yields, as investors reassessed expectations for interest-rate cuts by the U.S. Federal Reserve. When yields rise, the market value of existing bonds falls, which can reduce the attractiveness of previously issued debt holdings.

Economics and market strategists say these market conditions likely contributed to a more cautious approach among some foreign investors, although the Treasury data do not identify the specific reasons behind individual buying or selling decisions.

U.S. Treasuries are government bonds issued to finance federal spending and are widely regarded as among the safest and most liquid assets in global financial markets. Central banks and governments often hold them as part of their foreign exchange reserves.

China has gradually reduced its Treasury holdings over the past decade as part of a broader diversification strategy, while Japan has remained the largest foreign holder for several years—a figure which previously peaked at $1.325 trillion in November 2021.

Overall net capital inflows into the United States totaled $150.7 billion in March, down from $182.7 billion in February. However, foreign investors continued to add to their holdings of U.S. corporate bonds and equities during the month.

The Treasury International Capital (TIC) data are compiled primarily from reports submitted by U.S. banks and financial institutions. The figures show where securities are held, although they do not always identify the ultimate owner when assets are managed through third-country financial centers.

Despite the monthly decline, foreign holdings of U.S. Treasuries remained about 3.3 percent higher than a year earlier.

The next TIC report, covering April data, is scheduled for release on June 18.