UK overtakes China as second-largest holder of US Treasuries

[WORLD] China shrank its holdings of US Treasuries in March, with the United Kingdom replacing it as the No. 2 overseas owner. The month, which preceded the April turmoil in the Treasuries market, saw a second straight jump in foreign purchases, to a fresh record high. Total overseas holdings rose US$233.1bil, to US$9.05 trillion, Treasury Department figures showed last Friday. China was the top holder of Treasuries as recently as 2019, when Japan overtook it. The latest data show the UK surpassed China for the first time in more than two decades, according to data.

China’s reduction in U.S. Treasury holdings comes amid broader shifts in global capital flows, as geopolitical tensions and economic uncertainties continue to influence investment strategies. Analysts suggest that Beijing may be diversifying its foreign exchange reserves to mitigate risks associated with U.S. fiscal policies and potential sanctions. This move aligns with China’s long-term strategy to reduce its reliance on dollar-denominated assets, particularly as trade relations between the two superpowers remain strained.

The surge in foreign demand for U.S. Treasuries in March, despite China’s pullback, highlights the enduring appeal of U.S. debt as a safe-haven asset. Investors worldwide flocked to Treasuries amid rising volatility in equity markets and concerns over inflation. The record-high purchases also reflect confidence in the Federal Reserve’s ability to manage monetary policy, even as interest rate hikes loom on the horizon.

The United Kingdom’s ascent to the position of the second-largest foreign holder of U.S. Treasuries marks a significant milestone. This shift is partly attributed to London’s role as a global financial hub, where many international transactions are routed through British institutions. Some experts speculate that the UK’s increased holdings could also be linked to post-Brexit financial strategies, as the country seeks to solidify its position in global markets.

Japan, which overtook China as the top holder of U.S. Treasuries in 2019, maintained its leading position in March. The country’s consistent investments in U.S. debt underscore its close economic ties with the United States and its need to park substantial foreign reserves in liquid, stable assets. However, with the yen under pressure and Japan’s own monetary policy in flux, future trends in its Treasury holdings remain a key area to watch.

The April turmoil in the Treasuries market, which followed the recorded surge in foreign purchases, adds another layer of complexity to these trends. Yields spiked as investors grappled with mixed signals from the Fed and fears of prolonged inflation. This volatility may test the resolve of foreign investors, particularly if the U.S. debt market faces further instability in the coming months.

Economists are closely monitoring whether China’s retreat from U.S. Treasuries will accelerate in the near future. A sustained divestment could have ripple effects on bond yields and the dollar’s strength, potentially reshaping global financial dynamics. Meanwhile, other nations, including Belgium and Luxembourg, have also been increasing their stakes, signaling a broader recalibration of international reserve portfolios.

The Treasury Department’s data underscores the interconnected nature of global finance, where shifts in one major economy can reverberate across markets worldwide. As central banks and sovereign wealth funds adjust their strategies, the composition of U.S. debt holders will continue to evolve, reflecting both economic priorities and geopolitical realities.