China drops to No. 3 holder of US Treasuries, behind UK

Synopsis

In March, China reduced its US Treasury holdings, allowing the UK to become the second-largest overseas owner. Total foreign holdings increased to a record $9.05 trillion, despite Trump's trade war rhetoric. While Japan increased its holdings, China's move was seen as a strategy to shorten portfolio maturity rather than abandoning the dollar.

China shrank its holdings of US Treasuries in March, with the UK 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 $233.1 billion, to $9.05 trillion, Treasury Department figures showed 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 compiled by Bloomberg.

More broadly, Friday’s release showed that, at least as of March, there was no revolt against American government securities.

Foreign demand has been a point of discussion in the bond market since President Donald Trump mounted an aggressive tariff-hiking campaign and repeatedly accused US economic partners of having “ripped off” the nation. His April 2 “Liberation Day” levies stoked a selloff in Treasuries, the dollar and stocks at times during that month.

Brad Setser, a former US Treasury official now at the Council on Foreign Relations, wrote on X that he viewed China’s shift as “a move to reduce duration than any real move out of the dollar.”

“I do see good evidence that China is shortening the maturity of its portfolio,” he wrote.

As for March, Japan, the UK, Canada and Belgium were among the countries whose Treasuries holdings rose. The UK, saw its stockpile rise to $779.3 billion, putting it above China’s $765.4 billion. The Chinese holdings reflected, in part, net sales of $27.6 billion of long-term Treasuries.

Japan, Canada

Japan’s holdings rose for a third straight month, to $1.13 trillion. Canada’s stockpile rose by $20.1 billion, to $426.2 billion, the data showed.

Belgium, whose holdings include Chinese custodial accounts according to market analysts, rose by $7.4 billion to $402.1 billion of Treasuries in March.

Holdings of the Cayman Islands — viewed as a popular domicile for leveraged investors such as hedge funds, — rose by $37.5 billion, to $455.3 billion.

The Bloomberg Dollar Spot Index dropped 1.8% in March, ahead of the near 4% slide the following month amid the volatility sparked by Trump’s tariff threats. Ten-year Treasury yields were little changed in March, before careening from as low as 3.86% to as high as 4.59% during the April turmoil.

Trade-war fears have diminished more recently, after a meeting of US and Chinese officials last weekend led to a lower set of levies between those nations. Earlier this month, the Trump adminstration announced a trade deal with the UK.