Bullets:
Foreign central banks and institution are selling off their holdings of US Treasury bonds.
The war against Iran is driving bondholders to dump US government debt at a record pace, and foreign Treasury holdings at the NY Fed are at the lowest level in nearly fifteen years.
The heavy liquidations are driving bond yields in the United States higher, and borrowing costs for government, and American households and businesses, are spiking higher.
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Report:
Good morning.
What China is doing for their foreign exchange holdings of US Treasury bonds is hard to pull off. China runs huge trade surpluses, and a lot of that surplus is denominated in US dollars.
Macroeconomic theory, at least until very recently, held that those US dollars earned in trade surplus would be reinvested back into US assets, like deposits held in American banks, or to fund purchases of stocks on US exchanges, or property in the United States. That is not happening.
China enjoys higher trade surpluses than ever, across almost all currencies, but notably are dumping US Treasuries. Chinese holdings of US government bonds are at the lowest level since 2008. They clearly are taking some of those surpluses and buying gold on Western exchanges, and hauling it back to vaults here in Asia:
A big motivation for central bank selling of US Treasury bonds was the freezing, and then seizure, of Russian foreign exchange reserves. That was in 2022, and that’s when the trend of Chinese Treasury holdings went from a gradual, sloping downward line, like an aircraft on approach to land, to a line straight down.
That was the catalyst for the BRICS countries to develop their own financial system, outside the US dollar and US banks, and to either dump Treasury bonds outright or move them to their own safe havens, in Hong Kong or Singapore.
The Iran War is now a catalyst for other countries to do the same.
1 April 2026: “Foreign central banks have slashed their holdings of Treasuries” in New York to the lowest level since 2012, to protect their currencies and economies. The one-month drop was $82 billion. There is the chart for that, and we see another line straight down, starting on the day the war on Iran kicked off.
“The foreign official sector”—that’s central banks and sovereign funds—is selling US Treasury bonds. Holdings for Turkiye went from about $30 billion, to around $6 billion, in a single month. Thailand and India are also selling.
All these sellers are pushing the prices of Treasuries down, and so in the case of bonds, it means the yields are going up. Borrowing costs for the US government are rising, and naturally that means higher yields and interest payments for businesses and individuals.
This part is important, and we’ve discussed it before:
Some of this activity might not be outright sales of US Treasury bonds. It may be that FX managers in these countries are just changing the custodian, from New York to Hong Kong, or perhaps to custody in countries where Western regulators can’t seize them. We’ll follow up on that question when the data become more clear. But we don’t think that’s happening here, this time. These are almost certainly outright sales, not merely a transfer of custody, or a liquidation in New York that’s offset by a purchase in another system, because the yields are going up, and in the case of India, for example, just moving the bonds from New York to Hong Kong doesn’t solve the problem they have, which is that they can’t buy oil from Iran or Russia, using dollars.
Be Good.
Resources and links:
Foreign Central Banks Cut New York Fed Treasury Holdings To 2012 Lows
https://finimize.com/content/foreign-central-banks-cut-new-york-fed-treasury-holdings-to-2012-lows
China is dumping US treasuries and buying Gold
https://www.fxstreet.com/analysis/china-is-dumping-us-treasuries-and-buying-gold-202404212302
For¬eign cent¬ral banks sell US Treas¬ur¬ies amid war in Iran
https://ft.pressreader.com/1389/20260401/281681146423183
China’s Years-Long Retreat From US Treasuries Flags Bigger Risks
https://www.bloomberg.com/news/articles/2026-02-11/china-s-years-long-retreat-from-us-treasuries-flags-bigger-risks
Chinese Bonds Are Appealing as Reserve Assets, Gavekal Says
https://www.bloomberg.com/news/articles/2026-03-25/chinese-bonds-are-appealing-as-reserve-assets-gavekal-says
China surpasses $1 trillion trade surplus despite Trump tariffs
https://businessreport.co.za/business/2025-12-11-china-surpasses-1-trillion-trade-surplus-despite-trump-tariffs/
Lesson 3 (above). Balance of Payments — Why Current and Capital Accounts Net Out.
https://www.aei.org/carpe-diem/khan-academy-three-part-video-series-on-the-balance-of-payments-and-why-there-is-no-trade-imbalance/
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