The past few months have produced a strange contrast in global markets. Headlines warn that China is cutting back on US treasuries while the dollar slides and confidence in America is questioned.

At the same time, hard data shows foreign ownership of US Treasuries at record levels.

Both statements are true, although they describe very different parts of the same system.

What is changing is not whether the US can fund itself, but who is doing the funding and under what conditions.

China steps back, but not in the way headlines suggest

As of the end of 2025, China’s holdings of US Treasuries have fallen to roughly $680 billion, according to US Treasury data, down from more than $1.3 trillion at their peak in the early 2010s.

That decline has been steady for years and did not start with recent political tensions or election cycles. It indicates long-running decisions around reserve diversification and domestic financial risk.

The latest development has been guidance from Chinese regulators to large domestic banks to limit or reduce their exposure to US government bonds.

Many have perceived the headline as a catastrophic scenario, but the reasoning is straightforward.

US Treasuries are more volatile than they were a decade ago, and a weaker dollar amplifies losses when returns are measured in yuan.

For banks that must manage capital ratios and earnings stability, holding large foreign bond portfolios has become less attractive.

It’s also worth noting that this guidance does not apply to China’s official state reserves, but rather to commercial banks.

That distinction is often lost in news coverage, although it matters for scale.

Banks are price-sensitive and short-term focused. State reserves operate on a different horizon. China is reducing exposure at the margin, but it’s not exactly exiting the market.

Japan keeps buying for structural reasons

Japan now sits at the top of the foreign holder rankings with more than $1.2 trillion in US Treasuries. Recent data show Japanese holdings rising.

This has less to do with confidence in US politics and more to do with domestic constraints.

Japanese yields remain low by global standards, even after recent adjustments. Local institutions face limited alternatives that combine liquidity, scale, and positive yield.

Source: Invezz