• China reduced US Treasury holdings to $682.6 billion in November 2025, lowest level since 2008
• Foreign ownership of US debt reached record high as Japan and UK increased holdings to offset Chinese sales
• Analysts cite trade tensions, diversification strategies, and concerns over US fiscal sustainability as driving factors

WASHINGTON, DC (TDR) — Major foreign holders of U.S. Treasury securities are quietly restructuring their portfolios in ways that could signal a fundamental shift in global financial markets, with China reducing its holdings to a 17-year low while simultaneously increasing gold reserves for the 14th consecutive month.

China’s holdings of US Treasury bonds fell to $682.6 billion in November 2025, down from $688.7 billion in October and marking the lowest level since 2008, according to data released by the U.S. Department of the Treasury. The reduction represents more than a 10% decline since the beginning of 2025 and a dramatic fall from the peak of approximately $1.3 trillion held in 2013.

Diversification Into Gold Accelerates

As China cuts Treasury holdings, Beijing has ramped up its gold purchases with striking consistency. The People’s Bank of China reported gold reserves reached 74.15 million ounces by the end of December 2025, representing a 30,000-ounce increase from the previous month.

“The decline in China’s US Treasury holdings is the result of increased optimisation and diversification of overseas asset holdings seen in recent years, which has helped strengthen the overall security and stability of the portfolio,” Xi Junyang, a professor at the Shanghai University of Finance and Economics, told Chinese state media.

Freedom-Loving Beachwear by Red Beach Nation - Save 10% With Code RVM10

Liu Chunsheng, an associate professor at the Central University of Finance and Economics, noted that China’s reduction reflects considerations beyond simple investment returns.

“China’s reduction of US debt reflects considerations of foreign exchange reserve diversification, especially as US government debt has exceeded $34 trillion and market concerns over repayment capacity are rising,” Liu said.

Japan and UK Fill the Gap

Despite Chinese selling, total foreign holdings of US debt reached record highs in late 2025, with Japan and the United Kingdom picking up the slack.

CLICK HERE TO READ MORE FROM THE THE DUPREE REPORT

Japan’s holdings rose to approximately $1.2 trillion as of November 2025, up from $1.059 trillion in December 2024, cementing its position as the largest foreign holder of U.S. government debt. The UK surpassed China as the second-largest holder with $888.5 billion in November, an increase of $10.6 billion from the previous month.

However, recent market volatility has raised questions about whether this pattern can continue. With Japanese government bond yields hitting record highs in January 2026, analysts warn that Japanese investors may begin favoring domestic bonds over US Treasuries.

“Japanese investors in the past have been particularly aggressive in buying debt in other markets, in particular the U.S., where interest rates have been higher than in Japan,” economist Ed Yardeni explained. “Now that their yields are going up, you’re likely to see that Japanese bond investors may be more likely to stay home and invest in their own bonds rather than in the U.S., so that could put some upward pressure on U.S.”

Implications for US Borrowing Costs

The shifting landscape carries significant implications for American taxpayers and the federal government’s ability to finance its $36 trillion national debt at manageable rates.

When major holders reduce Treasury positions, the U.S. government must find new buyers to finance budget deficits and refinance maturing debt. Reduced demand typically translates to higher interest rates, which increase borrowing costs for the federal government, businesses, and consumers alike.

The 30-year Treasury yield jumped 9 basis points to 4.93% in mid-January 2026, approaching the psychologically important 5% threshold amid ongoing tariff threats from the Trump administration and concerns about fiscal sustainability.

“If US government debt keeps expanding without a path to stabilization, it will eventually trigger problems,” warned Guan Tao, global chief economist at investment bank BOCI China.

Credit ratings agency Moody’s downgraded the U.S. credit rating to Aa1 in May 2025, citing runaway deficits—the last of the three major rating agencies to strip America of its AAA rating.

Trade Tensions and Geopolitical Factors

While analysts emphasize that economic factors drive most portfolio decisions, geopolitical tensions between Washington and Beijing have undoubtedly influenced China’s approach to U.S. assets.

President Donald Trump has imposed tariffs of up to 145% on Chinese imports, while China responded with 125% tariffs on American goods. These escalating trade disputes create additional uncertainty around dollar-denominated assets.

“While deteriorating relations between China and the U.S. may lead China to reduce its holdings to some extent, political and strategic factors should not be considered the main factors affecting China’s investment and holdings of U.S. Treasury securities,” according to recent research published in SAGE Journals.

The study found no evidence that China has concentrated on quickly selling U.S. Treasuries as a “weapon” to counter the United States, attributing the decline instead to diversification of dollar investment approaches.

European Pension Funds Join Exodus

The trend extends beyond Asian central banks. Swedish pension fund Alecta announced it had sold most of its U.S. Treasury holdings over the past year, while Denmark’s AkademikerPension said it would sell its holdings by the end of January 2026.

However, aggregate European holdings actually increased through November 2025, suggesting individual fund decisions may not reflect broader regional trends. Data may overstate European ownership given that the region serves as a custodial center for global trading.

Dollar’s Reserve Status Questioned

The long-term implications for the U.S. dollar’s reserve currency status remain debated among economists.

State Street Global Advisors analysts argue that despite rising concerns, US Treasuries remain the medium-term safe haven with limited near-term scope for foreign divestment.

“Contrary to various press reports, we believe the sudden rise in the term premium post Liberation Day was driven mainly by tactical investment flows, rather than a structural flow reallocation,” State Street researchers concluded.

However, others warn that continued fiscal expansion without credible stabilization plans could fundamentally alter investor perceptions of American debt.

China holds the world’s largest foreign exchange reserves totaling $3.36 trillion at the end of December 2025. How Beijing manages this portfolio in coming years will significantly influence global financial markets and U.S. borrowing conditions.

Can the United States maintain its privileged position in global finance if major creditors continue diversifying away from dollar-denominated assets?

Sources

This report was compiled using information from Business Standard’s reporting on China’s Treasury reduction, US Treasury Department TIC data, USAFacts analysis of foreign debt ownership, CNBC coverage of bond market sell-offs, Economics Insider’s Treasury holder rankings, State Street Global Advisors research, China Daily reporting on reserve optimization, SAGE Journals research paper, Global Times coverage, and Globe and Mail analysis of European holdings.

Freedom-Loving Beachwear by Red Beach Nation - Save 10% With Code RVM10