US Treasuries Have Become Unappetizing for Foreign Central Banks and Governments

Recorded: Sept. 18, 2026, 5:09 p.m.

Original

Summarized

Treasuries Have Become Badly Unappetizing for Foreign Central Banks & Governments | Wolf Street

Search for:

Wolf Street

Main menu
Skip to content
Home
Wolf Richter
Federal Reserve
Housing Bubble 2
Donate?
Commenting
Contact

Sub menu

IMPLODED STOCKS
Brick & Mortar Meltdown
Banks
California
Canada
CRE, the Epic Mess
Credit Bubble
Debtor Nation
Drunken Sailors
Europe
Federal Reserve
Housing Bubble 2
Inflation & Devaluation
Japan
Jobs
Markets & Companies
Oil, Gas, Power
Trucks & Cars
Trade & Transportation

Treasuries Have Become Badly Unappetizing for Foreign Central Banks & Governments

by Wolf Richter • Sep 17, 2026 • 19 Comments

But opaque foreign financial centers pile on Treasuries, often held by US companies and hedge funds.
By Wolf Richter for WOLF STREET.
Treasury securities have lost their allure for foreign central banks and governments, whose holdings declined this year and in July dropped to $3.77 trillion at market value, roughly where they’d been in 2012, according to the Treasury Department’s TIC data.
But over this period, since 2012, the amount of Treasury securities outstanding has about tripled, according to the Dallas Fed market-value data (via St. Louis Fed). And inflation since 2012 was 48%. And the share of these “foreign official” holdings has collapsed from a share of 34% of marketable Treasury securities in 2012, and from a share of over 38% at the peak in 2007-2009, to a share of 12.8% in July, the lowest share since 1993.
There are three aspects to this:

Treasury securities have become increasingly unappetizing for foreign central banks and governments.
The US has become a lot less dependent on foreign central banks and governments to finance its massive out-of-control deficits.
The US has become more dependent on opaque foreign financial centers, where US hedge funds and companies keep their holdings.

Foreign holders in total – foreign official holders and foreign private holders – shed $50 billion of Treasury securities in July, bringing their holdings down to $9.25 trillion (red in the chart below). Those total holdings kept zigzagging higher over the years and reached a peak in February, driven by private foreign holdings.
Long-term Treasury notes and bonds accounted for $7.78 trillion, or about 84%, of the total foreign holdings (blue line). The rest were short-term Treasury bills.

But these private foreign holdings are not purely “foreign.” They include large amounts from US hedge funds that are domiciled in foreign financial centers, such as the Cayman Islands, a big favorite for hedge funds engaged in the highly leveraged Treasury basis trade that buy Treasuries, estimated at close to $2 trillion, and sell Treasury futures against them. This is the hot money in Treasuries, and back in March 2020, it caused the Treasury market to seize, an event that the Fed keeps nervously talking about. Only now, it’s a lot bigger.
And they include holdings by US companies that have entities in Ireland and elsewhere where they keep their foreign profits, instead of repatriating them to the US and paying income taxes on them in the US. Apple became a poster boy of that during a Senate investigation in 2013. US Big Pharma has set up in Ireland for these reasons. And those Treasuries are included in “foreign private” holdings because the entities that hold them are registered in foreign countries.

But their share of marketable Treasury securities outstanding declined to a near-record low in July of 31.9%, roughly matching three months in 2020, when the US government had issued about $3 trillion in new debt in three months, and the Fed had bought $3 trillion in three months.

Japan dumped Treasury holdings, shedding $13 billion in July. From February through July, Japan reduced its Treasury holdings by $135 billion.
Japan is trying to put a floor under the collapsing yen and had engaged in multiple rounds of currency market interventions, selling dollars and buying yen. It sold Treasury securities in advance of the intervention to obtain the dollars and to sell them in the currency market and buy yen.
These sales are hugely profitable in yen-terms for the Japanese government since it purchased the securities with much stronger yen years ago, and now gets many more yen from the proceeds due to the yen’s plunge against the dollar. As many of the sold securities were close to their maturity dates, and therefore brought close to face value, the losses in dollar terms due to higher yields were minimal. There are public discussions underway in Japan about what to do with these profits from the Treasury trade. Spend them is part of the answer. Don’t cry for Japan.

Mainland China and Hong Kong combined have been relentlessly dumping their Treasury holdings since 2015, and that continued in July, when they shed $13 billion, bringing the 12-month total reduction to $67 billion.
Since the peak in 2015, they have shed $587 billion. And their share has dropped to an inconsequential 3.0% of the marketable Treasury securities outstanding.

Opaque financial centers rule. Treasury holdings in the seven largest financial centers combined rose to $3.28 trillion. Those seven account for about 11% of all marketable Treasury securities outstanding, and about 35% of all foreign holdings!
In order of the magnitude of their holdings:

United Kingdom ($1.0 trillion), actually the City of London, the largest financial center in the world;
Belgium ($471 billion), home of Euroclear;
Cayman Islands ($460 billion) where US hedge funds are domiciled;
Luxembourg ($442 billion);
Ireland ($350 billion);
Switzerland ($285 billion);
Singapore ($278 billion).

Canada’s Treasury yoyo: In July, its holdings plunged by $33 billion to $426 billion, undoing more than the spike in the prior month. The high was in September 2025 ($476 billion).
The recent massive yoyo makes me think that we’re looking at data collection noise, and not at some investment choices Canadians are making.

France’s holdings plunged in July by $42 billion from record levels, to $348 billion. The French banking system also has characteristics of financial centers.

Taiwan’s holdings fell by $6 billion in July, to $296 billion:

Norway’s holdings rose by $4 billion in July, to $207 billion, after four months of declines, and was essentially unchanged from a year ago.
The tiny country is home to the world’s largest sovereign wealth fund, the Government Pension Fund Global, also known as the Oil Fund, which has $2.3 trillion in assets under management, including Treasuries.
The fund manager has now proposed to reduce its bond holdings in general, and most of the reductions would hit its Treasury holdings, which could be cut by about $80 billion. So we’ll see if that happens.

India’s holdings jumped by $16 billion in July, to $203 billion, but still down by $17 billion year-over-year.

Brazil’s holdings have been roughly unchanged since October last year, at $168 billion in July, down by 46% from the peak in 2018.

Enjoy reading WOLF STREET and want to support it? You can donate. I appreciate it immensely. Click on the mug to find out how:

To subscribe to WOLF STREET...

Enter your email address to receive notifications of new articles by email. It's free.

Email Address

Join 13.8K other subscribers

Print this article 🖨

Email to a friend

Post navigation
← Pending Home Sales Stuck Deep in Mud, Edge up from Down-Revised 2nd Lowest on Record, Supply Hits 10-Year+ High

19 comments for “Treasuries Have Become Badly Unappetizing for Foreign Central Banks & Governments”

spencer says:

Sep 18, 2026 at 12:06 am
Real interest rates have declined making holding Treasuries less appealing.
Reply

JMac says:

Sep 18, 2026 at 6:58 am
Is this happening because foreign central banks are losing confidence in the us debt situation because they are concerned that the the “let it run hot” plan is to risky for them? Are they concerned that the risk of inflation is going to eat away at any possible financial gain? Treasuries are short-term, so long term inflation isn’t really a problem, right?
Or is it because these central banks are cashing in because it seams that we have entered into a bond bear market/they need the money like Japan and the private institution/others are willing to buy them?
Thanks for the detailed article. Your website has helped me have a much better understanding of how the financial world works!
Reply

Pain in your ass Steve says:

Sep 18, 2026 at 7:00 am
Bank of America’s Unrealized Bond Losses Could Top $90 Billion on Surging Yields
Reply

yippee says:

Sep 18, 2026 at 7:04 am
I commented and asked, in past about balance sheets of central banks. for many central banks, Gold at current market values dwarfs their bond holdings. usa and italy are in the neighborhood of 70% when pricing gold to current market value. just an fyi and question, too. i enjoy your blog. you lay out complicated topics quite nicely. a tip of the hat.
Reply

Wolf Richter says:

Sep 18, 2026 at 10:25 am
“Gold at current market values dwarfs their bond holdings.”
1. central banks shouldn’t hold any long-term bonds in their own currency. Those bonds are leftover from QE and they should get rid of them through QT, and they’re doing some of that.
2. But central banks hold securities denominated in other currencies, such as USD denominated Treasuries (“foreign exchange reserves”), and those dwarf their gold holdings. From my article (scroll to the bottom to the gold chart):
https://wolfstreet.com/2026/03/28/status-of-us-dollar-as-global-reserve-currency-usd-share-drops-to-31-year-low-as-central-banks-diversify-into-other-currencies-gold/
“Official gold holdings at the end of 2025 would be valued at $5.27 trillion at today’s price, compared to $13.0 trillion in total foreign exchange reserves, and $7.46 trillion in USD-denominated foreign exchange reserves:“
Reply

Pain in your ass Steve says:

Sep 18, 2026 at 7:05 am
Lol, I just found this. Barron’s been singing this tune for a while
Bank of America Bond Losses Could Top $100 Billion Due to Rising Rates
Barron’s
·
Jan 9, 2025 00:01
Reply

Wolf Richter says:

Sep 18, 2026 at 10:16 am
That’s been going on since 2022 and several regional banks have collapsed because of it in 2023.
Everyone who bought bonds in 2020 and 2021 sits on huge losses, but they can hold to maturity and have zero losses because they will get paid face value at maturity and collect small interest payments along the way, which is what banks are doing. That’s how long-term bond investors look at bonds. Traders look at bonds differently, they’re trying to capture movements.
Reply

Eddie says:

Sep 18, 2026 at 7:22 am
This only means 1 thing, higher interest and more volatility. Expect the Government to pay a higher rate to attract private hedge funds.
Reply

Andrew Pepper says:

Sep 18, 2026 at 7:49 am
As a foreign state, devaluation of the US dollar comes to mind when they sell US dollar Treasuries. A US foreign based hedge fund does not have to exchange it winnings into dollars, their balance sheet is already in dollars.
I would guess that foreign states selling US treasuries expect a US dollar devaluation in the future. After all, a 10 percent devaluation of the US dollar against their home currency, would easily offset any interest profits made in dollars.
Reply

Wolf Richter says:

Sep 18, 2026 at 10:13 am
It’s the other way around. Read what I said in this article and the linked article about Japan and its interventions. Japan made lots of profits on its Treasury sales because the yen collapsed against the USD, not the other way around.
Reply

Delusional about inflation says:

Sep 18, 2026 at 8:24 am
The increase in Basis trade holding filled the gap of all foreign central banks decrease holdings. From what I read the basis trade is composed primary of bond above 10 year duration. what could go wrong on a highly leverage USA hedge debt trade?
Cheers
Reply

SoCalBeachDude says:

Sep 18, 2026 at 8:35 am
When is the US going to get a reasonably intelligent Secretary of the Treasury with some degree of honesty and responsibility towards managing the appalling mess that US Treasuries have become?
Reply

SoCalBeachDude says:

Sep 18, 2026 at 8:38 am
MW: The Fed hasn’t been this terse since 2007. What a 130-word statement signals for market stability.
Reply

Wes says:

Sep 18, 2026 at 8:49 am
Let’s see, every time the Fed increases rates the older treasuries(lower interest rate)lose value, ie, discounted. So, if those who bought them had swap agreements, ie, hedged they’re protected. The hedge funds who are also holding dated treasuries of lower interest rates are most likely short selling to maintain or exceed par. Those who are long in duration are the most exposed to increasing interest rates. Those who are short have the opportunity to gain particularly from the FOMC guidance speculating/front running the Fed. And, the media(useful idiots) seem to not have a clue on why the Fed doesn’t want to telegraph their guidance.
Reply

Wolf Richter says:

Sep 18, 2026 at 10:07 am
Your theory doesn’t work because that’s not how the bond market works.
The Fed’s rate hikes only impact more or less short-term securities, such as T-bills or 10-year notes that were issued 9.5 years ago and now trade like T-bills. Their yield moves with the FOMC’s rate decisions or the expectation of those decisions. But the change in price is minuscule. Why? Because the buyer is going to get face value when the security matures in a few months, plus the full interest (if T-bill) or the last interest payment (if coupon). So the discount induced by a rate hike is so small you can barely see it.
In addition, the rate hike was priced in and short-term yields rose ahead of it in anticipation. Now they’re rising in anticipation of the next rate hike. For example the 6-month yield is 38 basis points ahead of the post-rate-hike EFFR, but only gained a couple of basis points following the rate hike.
If you have to sell $1,000 of face value of 6-month T-bills that you bought 3 months ago at auction for $980 (the difference = interest), you will find that the discount is negligible because the buyer will get $1,000 in three months. So how much is the buyer going to pay you to get $1,000 in three months? You collect the amount you paid plus the first 3 months of interest, but will give up the next 3 months of interest (=$10) that go to the buyer, plus a few pennies to account for the higher current yield. So you might get $989.50 for the bills that you paid $980 three months ago. Which is why T-bills are liquid and not really subject to interest rate risk.
But the longer the remaining maturity, the bigger the loss when yields rise, which is why bonds with 25 years left to run get hit so hard when long-term yields rise.
But the Fed doesn’t control long-term yields: In late 2024, the Fed cut by 100 basis points, but the 10-year yield rose by 100 basis points. If you engaged in a leveraged bet that the Fed’s 100 basis points in rate cuts would have produced a 100-basis point decline in the 10-year yield, you might have gotten wiped out. That’s the bond market at work.
The Fed raised on Wed, yesterday the 10-year yield dropped sharply and today the 10-year yield is back at 5%+ . It’s the bond market that decides this in its chaotic interplay between buyers and sellers, not the Fed.
Reply

Wes says:

Sep 18, 2026 at 11:52 am
Long term treasuries 5-30 years out have lost value. Yes, they can hold until maturity but they lose yield to inflation every year. There were long term treasuries that were bought at 2 to 2.5% during 2020-2022. Every year they hold they lose to inflation. They can hold till maturity or the possibility that interest rates decline. If they sell now they face a 40-50% reduction in principal. I have been investing in treasuries 1 year or less and some are slightly discounted but with the maturity being a year or less it’s not a problem to hold to maturity. Just go look through the CUSIPs 5-30 years, somebody’s holding them at a loss, or hedged/swapped. The losses add up when you’re holding billions of dollars in long term treasuries. One percent of a billion dollars is 10 million dollars. If your duration is five years or less it’s reasonable to wait it out to maturity.
PS Yen,
Keep in mind as the Yen lost value to the dollar the energy costs skyrocketed in Japan being oil is priced in U.S. dollars. With a lower yen Japan is able to be more competitive in exporting, however, they have to import too, which may cost more depending on what they’re importing and in what currency.
Reply

RankAmateur says:

Sep 18, 2026 at 9:38 am
Re Wolf’s: “But these private foreign holdings are not purely “foreign.” They include large amounts from US hedge funds that are domiciled in foreign financial centers, such as the Cayman Islands,” this is correct. Offshore hedge funds are often a vehicle for tax-exempt U.S. investors to engage in leveraged trading. This is because of unrelated business taxable income–basically the profits from leveraged trading. U.S. tax-exempts are taxed on their UBTI if the trading is conducted directly, such as through a U.S. brokerage account. But the use of a corporate “blocker,” such as a Cayman corporation, essentially converts the taxable UBTI to non-taxable dividend income.
Reply

WB says:

Sep 18, 2026 at 10:07 am
What do all ya’ll expect after 17+ years of rate suppression?
RISK is being repriced, globally.
Reply

Yippee says:

Sep 18, 2026 at 10:10 am
Fed raised. Not cut. On Wednesday
Reply

Leave a Reply Cancel replyYour email address will not be published. Required fields are marked *

Front Page

Pending Home Sales Stuck Deep in Mud, Edge up from Down-Revised 2nd Lowest on Record, Supply Hits 10-Year+ High

by Wolf Richter • Sep 17, 2026

Sales were bad in all regions. But mortgage rates in August were still quite a bit lower than now.

Fed Finally Hikes, Dot Plot Sees More Rate Hikes, New Rate-Hike Cycle Starts. Bond Market Breathes Small Sigh of Relief

by Wolf Richter • Sep 16, 2026

This was a hawkish meeting, with a unanimous vote for a hike, and more hikes indicated.

Despite All Moaning & Groaning, Americans Not in the Mood to Slow Down: Retail Sales Surge even without Gasoline

by Wolf Richter • Sep 16, 2026

Not even sky-high gasoline prices could dent their spending on bars & restaurants, ecommerce, cannabis stores, etc.

Some Thoughts on the 5.42% Yield at the 20-Year Treasury Auction: Bond Market Bloodbath Continues

by Wolf Richter • Sep 15, 2026

The function of yield is to create demand. And it did.

Manage Consent

To provide the best experiences, we use technologies like cookies to store and/or access device information. Consenting to these technologies will allow us to process data such as browsing behavior or unique IDs on this site. Not consenting or withdrawing consent, may adversely affect certain features and functions. For opt-out preferences & privacy policy, right-click the links below.

Functional

Always active

The technical storage or access is strictly necessary for the legitimate purpose of enabling the use of a specific service explicitly requested by the subscriber or user, or for the sole purpose of carrying out the transmission of a communication over an electronic communications network.

Preferences

The technical storage or access is necessary for the legitimate purpose of storing preferences that are not requested by the subscriber or user.

Statistics

The technical storage or access that is used exclusively for statistical purposes.
The technical storage or access that is used exclusively for anonymous statistical purposes. Without a subpoena, voluntary compliance on the part of your Internet Service Provider, or additional records from a third party, information stored or retrieved for this purpose alone cannot usually be used to identify you.

Marketing

The technical storage or access is required to create user profiles to send advertising, or to track the user on a website or across several websites for similar marketing purposes.

Manage options
Manage services
Manage {vendor_count} vendors
Read more about these purposes

Accept
Deny
View preferences
Save preferences
View preferences

{title}
{title}
{title}

Manage consent

Treasury securities have diminished in appeal for foreign central banks and governments, evidenced by declining holdings since 2012. According to Treasury Department data, the market value of these holdings dropped significantly, and the share of these securities among foreign official holders has collapsed, falling to a low of 12.8 percent in July, the lowest share since 1993, compared to 34 percent in 2012. This shift is attributed to several factors, including the United States' reduced dependence on foreign central banks for financing its deficits and a greater reliance on opaque foreign financial centers where US companies and hedge funds maintain their assets.

In July, total foreign holdings in Treasury securities decreased by $50 billion, bringing the total down to $9.25 trillion. A significant portion of these holdings comprised long-term Treasury notes and bonds, accounting for approximately 84 percent of the total foreign holdings. These private foreign holdings are not purely foreign in nature; they extensively involve US hedge funds domiciled in offshore financial centers like the Cayman Islands, engaging in leveraged Treasury basis trades, and holdings by US companies that seek to keep foreign profits in entities located abroad, such as Ireland.

Various sovereign entities have demonstrated active divestment of US Treasuries. Japan, for instance, sold $13 billion in July to manage the collapsing yen and engage in currency market interventions. Mainland China and Hong Kong have continuously dumped their holdings, shedding $13 billion in July, which contributed to a total reduction of $67 billion since 2015. This trend highlights how monetary pressures and currency fluctuations influence sovereign asset management.

The concentration of Treasury holdings among the world’s largest financial centers underscores this dynamic. The seven largest financial centers collectively hold $3.28 trillion in Treasury securities, representing approximately 11 percent of all marketable Treasury securities outstanding and 35 percent of all foreign holdings. These centers include the United Kingdom, the Cayman Islands, Luxembourg, Ireland, Switzerland, and Singapore.

Other regional holdings exhibited varied movements; Canada’s Treasury holdings experienced a substantial drop in July, contrasting with increases seen in Norway and India. The Norwegian sovereign wealth fund, for example, is considering reducing its bond holdings, which could impact Treasury reserves. The complex interplay between inflation, yield movements, and the behavior of private versus official holders dictates the current state of Treasury market appetite for global financial actors.