Japan and China Sell Off US Treasuries, Amidst Growing Pressure on US Policy

Several major nations recorded a reduction in their holdings of US government debt, known as US Treasuries, in March 2026. According to the latest data from Treasury International Capital (TIC), Japan and China were the two largest nations to divest from US Treasuries.

Japan remains the world’s largest holder of US Treasuries, with holdings reaching US$1.1916 trillion in March 202gsub. However, this figure represents a sharp decline from February 2026, which stood at US$1.2393 trillion. This indicates that Japan offloaded approximately US$47.7 billion in US Treasuries in just one month.

China followed a similar pattern, with its US Treasury holdings dropping from US$693.3 billion in February 2026 to US$652.3 billion in March 2026. Consequently, China divested around US$41 billion in US Treasuries within a single month. This reduction in Chinese holdings continues a long-term trend; compared to March 2025, China’s US Treasury holdings have fallen from US$765.4 billion to US$652.3 billion, representing a total decrease of approximately US$113.1 billion over the year.

In addition to Japan and China, several other nations also recorded declines in US Treasury holdings in March 2026. These include Luxembourg (US$13.7 billion), Taiwan (US$12.7 billion), Saudi Arabia (US$10.8 billion), India (US$7.6 billion), Canada (US$6.9 billion), and the United Arab Emirates (US$5.8 billion).

Why are so many countries exiting US Treasuries?

The sale of US Treasuries by various nations does not necessarily imply a complete loss of confidence in US government debt. In many instances, these moves are related to foreign exchange reserve management strategies, exchange rate stabilisation, and the need to navigate geopolitical and trade pressures.

One primary reason is the stabilisation of domestic currencies. When a country’s currency weakens sharply against the US dollar, central banks may sell portions of their US Treasury holdings to acquire dollars. These funds can then be used for foreign exchange market interventions—buying the domestic currency to prevent excessive depreciation. This tactic is commonly employed when exchange rate pressures intensify.

For developing nations, an overly sharp currency depreciation can trigger significant risks, ranging from rising import costs and inflationary pressures to increased burdens on foreign debt servicing denominated in US dollars.

Another reason is the diversification of foreign exchange reserves. For decades, the US dollar and US Treasuries have been the primary instruments of global reserves. However, in recent years, several countries have begun reducing their dependence on the US dollar. China, for example, has long been trimming its US Treasury holdings while simultaneously increasing its allocation to other assets, including gold. This diversification aims to ensure that reserves are not overly reliant on a single currency or instrument, thereby spreading risk in the event of a weakening dollar, sharp fluctuations in bond yields, or shifts in US monetary policy.

Beyond economic factors, geopolitical elements and trade relations also play a role. Some nations may reduce their US Treasury holdings as a response to US policies, such as tariffs, sanctions, or diplomatic tensions. In this context, US debt holdings can serve as a bargaining chip in international relations, though such use must be carefully calculated to avoid adverse impacts on the nation’s own financial markets.

Finally, hedging costs are a contributing factor. Foreign investors, including financial institutions such as insurance companies and pension funds, typically protect their investments against exchange rate risks. However, when the cost of hedging against the dollar becomes too expensive, the yield on US Treasuries may become less attractive. As a result, some investors choose to divest from US bonds and move their funds into other assets deemed more efficient.