WASHINGTON, September 17 — China’s holdings of US Treasury securities have fallen to their lowest level in 18 years, according to US Treasury International Capital data released on September 18, 2025. The decline came as a broad global bond sell-off pushed yields higher across major markets, reflecting shifting investor sentiment and concerns about fiscal sustainability. The mechanics here are straightforward.
China, long the largest foreign holder of US government debt, has now reduced its Treasury portfolio for several consecutive months. That trend began during the US-China trade tensions of 2018-2019 and has continued amid rising geopolitical rivalry.
The TIC report, which tracks cross-border financial flows, showed China’s stock of US Treasuries dropping to a level not seen since 2007, the eve of the global financial crisis. But follow the money and the picture gets more complicated. While the exact figure was not immediately detailed in the headline, the 18-year low underscores a strategic diversification away from dollar-denominated assets.
Japan remains the largest foreign holder of US Treasuries, though its own holdings have fluctuated.
A global sell-off, not a China story
The global bond sell-off, which started in Europe and spread to the US, was driven by expectations of prolonged higher interest rates from the Federal Reserve and other central banks, as well as heavy government borrowing. The yield on the 10-year US Treasury note, a benchmark for global borrowing costs, rose sharply during the week, touching levels last seen in 2007. The sell-off also affected German bunds, UK gilts, and Japanese government bonds.
Analysts point to a combination of factors: sticky inflation, central bank tightening, and concerns over fiscal deficits. In the US, the federal deficit has widened, and the Treasury has increased auction sizes to fund spending.
Foreign demand at auctions has been mixed. China’s reduction of Treasury holdings is part of a broader effort to diversify its foreign exchange reserves, which stood at approximately $3.2 trillion as of August 2025. The People’s Bank of China has been increasing its gold reserves, a move seen as reducing reliance on the dollar.
The shift has implications for US borrowing costs and the dollar’s global role. However, some analysts note that China’s sales have been gradual and that the overall foreign appetite for Treasuries remains supported by the dollar’s status as the world’s reserve currency.
The TIC data also showed that total foreign holdings of US Treasuries fell in July, the most recent month for which data was available.
What to watch
The 10-year Treasury yield closed the week at around 4.5%, up from 4.2% a month earlier. The two-year yield, more sensitive to Fed policy, rose to 4.8%. The Fed, at its September 2025 meeting, held rates steady but signaled one more hike before the end of the year.
The bond sell-off has been global, with the Bloomberg Global Aggregate Index falling to its lowest level since 2008. Emerging markets have also felt the strain, with currencies depreciating against the dollar.
The story is developing and further TIC data will be released next month.
