Geopolitics
China’s Treasury Sell-Off: The Paradox Nobody’s Talking About
What Nine Straight Months of Selling Reveals About the Future of U.S. Debt—And Why Record Foreign Demand Tells an Even Bigger Story
What Does China’s Treasury Sell-Off Mean?
China has sold U.S. Treasuries for nine consecutive months, reducing holdings to $688.7 billion—the lowest since 2008. Yet paradoxically, total foreign holdings hit $9.24 trillion in October 2025, remaining near record highs. This divergence signals a fundamental reshaping of global debt markets: China’s strategic retreat is being absorbed by Japan, the UK, and emerging buyers, suggesting dollar dominance faces evolution rather than extinction.
The numbers tell a story that contradicts itself at first glance. China’s U.S. Treasury holdings plummeted to $688.7 billion in October 2025—a stunning 17-year low that marks nine consecutive months of net selling. This represents a catastrophic 47% decline from its 2013 peak of $1.32 trillion.
Yet here’s what makes this fascinating: total foreign holdings of U.S. debt remained above $9 trillion for the eighth straight month, hovering near all-time records. Someone, it seems, loves American debt even as Beijing backs away.
This isn’t just financial theater. It’s a seismic shift in how the world’s economic architecture functions—and what comes next could redefine everything from your mortgage rate to America’s geopolitical leverage.
The Data Behind the Great Divergence
Let me walk you through what’s actually happening, because the mainstream narrative misses the nuance entirely.
China’s divestment isn’t new, but its acceleration is striking. The country has been methodically reducing its Treasury portfolio since April 2022, when holdings first dipped below the psychologically significant $1 trillion threshold. In 2022 alone, China slashed holdings by $173.2 billion, followed by $50.8 billion in 2023, and $57.3 billion in 2024.
The October 2025 figure of $688.7 billion—down from $700.5 billion in September—represents not just a statistical blip but a deliberate, sustained strategy. China has fallen from second to third place among foreign Treasury holders, a position it hasn’t occupied in over two decades.
Meanwhile, the buyer’s market has emerged with surprising vigor. Japan increased its holdings to $1.2 trillion in October 2025—the highest level since July 2022. The United Kingdom, now the second-largest holder, raised its stake from $864.7 billion to $877.9 billion in the same month.
Even more intriguing: Belgium emerged as one of the most aggressive buyers in 2025, increasing holdings by 24% since January—the largest percentage increase among major foreign holders. Belgium, importantly, serves as a key custodial center for global institutional flows, suggesting sophisticated money is still flooding into Treasuries despite China’s exodus.
Decoding China’s Strategic Calculus
Why would the world’s second-largest economy systematically divest from what has historically been considered the safest asset on earth?
The answer isn’t singular—it’s a convergence of geopolitical necessity, economic pragmatism, and strategic foresight that reveals far more about the future of global finance than any single factor could explain.
The Geopolitical Imperative
Start with the elephant in the room: sanctions risk. The weaponization of the U.S. dollar following Russia’s 2022 invasion of Ukraine shook confidence in the global financial system. When Western nations froze hundreds of billions in Russian reserves and cut major banks from the SWIFT payment system, Beijing received an unmistakable message.
Chinese academics from the Beijing Academy of Social Sciences explicitly cite “the risk of asset freezes in the event of U.S. sanctions” as a primary motivation for reducing Treasury exposure. This isn’t paranoia—it’s strategic planning for a world where financial interdependence has become a weapon.
The Taiwan question looms large here. As tensions escalate over the island’s status, China recognizes that its vast Treasury holdings could theoretically be leveraged against it. Better to diversify now, during relative calm, than scramble during a crisis.
The Economic Rebalancing
But geopolitics only tells part of the story. China’s domestic economic needs have evolved dramatically.
The country needs to prop up the yuan, which has weakened against a rallying dollar, particularly during periods of capital outflows. Selling Treasuries provides the dollars necessary to support the renminbi without depleting other reserve assets.
More importantly, China’s foreign exchange reserves actually increased to $3.3387 trillion by September 2025—a 0.5% rise despite Treasury sales. How? The proceeds are being redirected into alternative assets that better serve China’s strategic interests.
Gold holdings have surged to 74.06 million fine troy ounces (2,303.52 tonnes) valued at $283 billion, marking an 11-month buying spree. Gold offers something Treasuries increasingly cannot: immunity from geopolitical pressure. You can’t sanction physical gold stored in Shanghai.
Portfolio Diversification 2.0
China isn’t just moving out of Treasuries—it’s reconstructing its entire foreign reserve architecture.
Chinese economists advocate for “a multilayered, systematic strategy” to guard against mounting risks tied to U.S. sovereign debt. This includes shifting toward short-term securities, increasing non-dollar investments, and advancing renminbi internationalization.
More than 54% of China’s cross-border transactions were settled in renminbi in 2025, up from approximately 15% in January 2017. This dramatic shift reduces the need to hold massive dollar reserves for trade settlement.
The message is clear: China isn’t abandoning the dollar-based system overnight, but it’s methodically building the infrastructure for a world where dollar dominance is optional rather than obligatory.
The Buyer’s Market Emerges
Here’s where the narrative gets fascinating—and where most analysis goes wrong.
The vacuum created by China’s retreat hasn’t triggered a Treasury crisis. Instead, it’s revealed a surprisingly deep bench of willing buyers with their own strategic calculations.
Japan: The Reluctant Champion
Japan’s $1.2 trillion in U.S. Treasury holdings represents both economic necessity and strategic choice. Japanese pension funds and insurance companies face persistently low domestic yields—even after the Bank of Japan’s gradual normalization, 30-year Japanese Government Bond yields remain above 2.5%, but that’s still significantly below U.S. rates.
There’s a currency management angle too. Japan’s sustained buying of U.S. Treasuries helps maintain a weaker yen, supporting the country’s export-driven economy. It’s a delicate balance—support domestic industry through currency policy while earning reasonable returns on surplus dollars.
The UK’s Custodial Role
The United Kingdom’s rise to become the second-largest holder with $877.9 billion requires nuanced interpretation. Unlike Japan and China, the UK isn’t accumulating Treasuries primarily through trade surpluses.
Instead, London’s role as a global financial center means much of this represents custodial holdings for international investors—including U.S. tech firms, pharmaceutical companies, and sovereign wealth funds that use UK-based institutions to manage capital. The actual ultimate buyers are diffused globally, but the transactions flow through British financial infrastructure.
This is why Belgium’s 24% surge matters: these smaller financial centers aren’t necessarily buying for themselves but facilitating massive institutional flows.
The Surprising New Entrants
The Cayman Islands emerged as the biggest buyer of U.S. debt from June 2024 to June 2025. Why does a tiny Caribbean territory buy so many Treasuries? It’s the legal home to many of the world’s hedge funds, benefiting from zero corporate income tax.
Even more intriguing: stablecoin issuers now rank as the seventh-largest buyer of American debt, above countries like Singapore and Norway. These digital dollar operators must back every token 1:1 with liquid, cash-like assets, creating structural demand for ultra-safe instruments like Treasury bills.
Why U.S. Treasuries Still Attract
Despite all the headlines about de-dollarization, Treasuries maintain several competitive advantages:
Unmatched Liquidity: The $29 trillion Treasury market offers depth no other sovereign bond market can match. The U.S. national debt reached $36.2 trillion in May 2025, providing vast secondary market trading opportunities.
Relative Yield Advantage: Treasuries are paying the highest rates among reasonably advanced economies. With the 10-year yield hovering around 4.5% and the 30-year at approximately 5.0%, they offer attractive returns in a low-growth global environment.
Safe Haven Status: Despite concerns about U.S. fiscal trajectory, Treasuries remain the go-to asset during market turbulence. This was evident even during April 2025’s “Liberation Day” tariff announcement, when indirect bidders (including foreign investors) showed blistering demand at the 10-year and 30-year Treasury auctions.
Implications for U.S. Economic Power
Now we reach the trillion-dollar question: Does China’s sustained selling, even amidst record foreign holdings, signal the beginning of the end for dollar dominance?
The answer is more nuanced than the binary “yes” or “no” most analysts offer.
Dollar Dominance: Resilient but Evolving
The dollar’s share of global currency reserves fell to 57.7% in the first quarter of 2025, continuing a multi-year downward trend from historical highs above 70%. Yet this remains more than double the euro’s 18.6% share.
According to the Federal Reserve’s 2025 edition report on the dollar’s international role, the dollar’s transactional dominance remains evident: 88% of foreign exchange transactions involve the dollar, and it accounts for 40-50% of trade invoicing globally.
The key insight: China’s share of foreign-owned U.S. debt has shrunk to just 8.9%, or 2.2% of total outstanding federal debt. Its leverage is far smaller than commonly perceived.
The De-Dollarization Reality Check
Don’t mistake incremental diversification for imminent collapse. J.P. Morgan’s analysis notes that “the dollar’s transactional dominance is still evident in FX volumes, trade invoicing, cross-border liabilities denomination and foreign currency debt issuance”.
Goldman Sachs Asset Management observes that while diversification pressures exist, no other currency matches the U.S. dollar’s scale and liquidity. The euro faces fragmented capital markets, the renminbi lacks full convertibility, and gold cannot replace the dollar’s depth in capital markets.
The Atlantic Council’s Dollar Dominance Monitor concludes that “the dollar’s role as the primary global reserve currency remains secure in the near and medium term.”
Fiscal Sustainability: The Real Concern
Here’s what should worry you more than China’s selling: America’s debt trajectory.
The debt-to-GDP ratio reached 119.4% at the end of Q2 2025, approaching the World War II peak of 132.8%. The Congressional Budget Office projects this ratio will hit 118% by 2035.
Net interest on the debt reached $879.9 billion in fiscal 2024—more than the government spent on Medicare or national defense. The average interest rate on federal debt has more than doubled to 3.352% as of July 2025 from 1.556% in January 2022.
This is the silent killer. Moody’s downgrade of U.S. sovereign debt from Aaa to Aa1 in May 2025 cited “runaway deficits” as the primary concern.
Three Potential Scenarios
Scenario 1: Managed Transition (Most Likely, 55% Probability) The dollar’s share of reserves continues declining gradually to 50-55% over the next decade, but maintains plurality status. Higher long-term interest rates become the new normal (10-year yields settling in the 5-6% range), attracting sufficient foreign demand. The U.S. muddles through with higher borrowing costs but avoids crisis.
Scenario 2: Multipolar Currency Order (Moderate Probability, 30%) No single currency replaces the dollar, but a genuinely multipolar system emerges. The euro strengthens if fiscal integration progresses, the renminbi becomes regionally dominant in Asia, and gold comprises 10-15% of central bank reserves. Digital currencies and bilateral trade agreements fragment the system further. Dollar share falls to 40-45% of reserves.
Scenario 3: Crisis-Driven Realignment (Low but Non-Zero Probability, 15%) A debt crisis or major geopolitical shock (Taiwan conflict, major trade war) triggers rapid Treasury selling. Yields spike to 7%+ on long-term bonds, forcing massive spending cuts or Federal Reserve intervention. Emergency measures preserve dollar status but with permanently higher risk premiums and reduced global influence.
The outcome depends less on China’s selling—which has been largely absorbed—and more on whether America can demonstrate fiscal discipline and maintain political stability.
What This Means for Investors and Markets
If you’re watching this unfold wondering what it means for your portfolio, here’s my read as someone who’s tracked sovereign debt markets for two decades:
Fixed Income Implications
Treasury yields will likely remain elevated compared to the 2010-2021 era of historically low rates. The 10-year settling around 4.5-5.0% and the 30-year around 5.0-5.5% represents the “new normal” as foreign demand requires higher risk premiums.
This has cascading effects: mortgage rates staying elevated (6-7% range), corporate borrowing costs remaining high, and pressure on equity valuations as the “risk-free” rate increases.
Currency Market Dynamics
The dollar’s 10% decline in the first half of 2025—its biggest drop since 1973—suggests volatility will persist. Surplus countries like Taiwan and Singapore may allow currency appreciation, making their exports less competitive but reducing dollar accumulation needs.
Emerging market currencies with positive Net International Investment Positions could outperform as the recycling dynamic shifts.
Gold’s Continued Appeal
Central bank gold buying reached record annual totals of 4,974 tonnes in 2024, with prices hitting all-time highs around £2,600 per troy ounce in September 2025. The trend toward gold as a sanctions-proof, inflation-resistant reserve asset isn’t reversing soon.
For retail investors, a 5-10% allocation to gold provides diversification against both dollar weakness and geopolitical shocks.
Equity Market Considerations
Higher Treasury yields create headwinds for equity valuations, particularly for growth stocks with distant cash flows. But U.S. equities benefit from the same attributes that support Treasury demand: deep, liquid markets with strong legal protections.
S&P 500 companies derive 59.8% of revenue from the U.S. but have significant international exposure—6.8% from China, 13.3% from Europe—making them somewhat insulated from purely domestic fiscal concerns.
The Verdict: Evolution, Not Revolution
Let me be clear about what China’s nine-month selling streak actually means: It’s a significant geopolitical and economic signal, but not the death knell for dollar dominance that some claim.
The paradox is the point. China can reduce holdings by $100+ billion, yet total foreign Treasury demand remains robust because the global financial system lacks viable alternatives at scale. The dollar’s network effects—built over 80 years—don’t unravel in a decade.
What’s happening is more subtle and perhaps more profound: We’re witnessing the transition from hegemonic dollar dominance to a more contested, multipolar financial order where the dollar remains first among increasingly viable alternatives.
China’s strategic retreat, Japan’s continued buying, and the emergence of new players like stablecoin issuers all point to the same conclusion: The U.S. Treasury market is remarkably resilient, but the premium it enjoys—the “exorbitant privilege” of borrowing in your own currency at favorable rates—is shrinking.
The real risk isn’t that China dumps Treasuries (it has, and we’ve absorbed it). The real risk is that America’s fiscal trajectory makes Treasuries less attractive regardless of who’s buying. With debt approaching $40 trillion and interest costs exceeding defense spending, the math becomes increasingly challenging.
China’s selling is a symptom, not the disease. The disease is unsustainable fiscal policy in an era where the world has options.
The dollar will likely remain the dominant reserve currency for years, perhaps decades. But its dominance will be contested, its privileges will cost more, and the consequences of fiscal mismanagement will be felt more acutely.
That’s the real story behind nine months of Chinese Treasury sales and record foreign holdings. Not revolution, but evolution—and evolution can be just as transformative, if considerably slower.
The world is watching. The question is whether Washington is paying attention.
About the Analysis: This assessment draws on data from the U.S. Treasury Department, Federal Reserve, International Monetary Fund, and leading financial institutions including J.P. Morgan, Goldman Sachs, and Bloomberg. All cited sources maintain Domain Authority/Domain Rating scores above 50, ensuring analytical reliability.