Foreign Investors' U.S. Treasury Holdings Decline 0.4% in April

In April, the U.S. Treasury Department released its highly anticipated 2025 International Capital Flow Report (TIC), revealing the movements of foreign investors in U.S. Treasury securities during a period of unusual market volatility. The report showed that foreign investors' holdings of U.S. Treasuries decreased slightly from their historical peak, indicating that despite the disruptive impact of the Trump administration's tariff policies, there was no significant sell-off by foreign investors during that month.

Data from the report indicated that foreign investors' holdings of U.S. Treasuries fell from a record high of 9.049 trillion dollars in March to 9.013 trillion dollars in April, marking the first decline in five months. Analysts attributed this decrease primarily to net selling by foreign private investors, while foreign official institutions continued to be net buyers of long-term U.S. Treasuries.

Prior to the release of the TIC report, some market participants had anticipated a more substantial decline in foreign investors' holdings of U.S. Treasuries. A team of rate strategists led by Jay Barry had predicted that the reduction would mainly come from private investors rather than official entities, which aligned with the data revealed in the report.

Despite the market turbulence caused by the Trump administration's tariff policies, there was no significant increase in demand for U.S. Treasuries as a safe haven. Instead, U.S. Treasuries experienced one of their largest declines in over two decades during the week following the announcement of the tariffs. The simultaneous decline in the U.S. dollar exacerbated concerns about a potential mass exodus of foreign investors from U.S. assets.

Among the top ten foreign holders of U.S. Treasuries, six countries (China, Cayman Islands, Luxembourg, Canada, France, and Switzerland) reduced their holdings, while four countries (Japan, United Kingdom, Belgium, and Ireland) increased theirs. Japan, the largest foreign holder of U.S. Treasuries, increased its holdings by 37 billion dollars to 1.1345 trillion dollars, marking the fourth consecutive month of increase. The United Kingdom, the second-largest holder, increased its holdings by 284 billion dollars to 807.7 billion dollars, surpassing China for the first time since October 2000.

China, the third-largest holder, reduced its holdings by 82 billion dollars to 757 billion dollars, reaching a new low since 2009. Canada, another major holder, saw the largest reduction in holdings, decreasing by 578 billion dollars to 368.4 billion dollars. The Cayman Islands, a popular registration location for hedge funds and leveraged investors, reduced its holdings by 70 billion dollars.

Overall, the changes in foreign investors' holdings of U.S. Treasuries in April were relatively modest, suggesting that the selling pressure primarily came from domestic investors rather than foreign ones. However, the long-term outlook for the U.S. Treasury market remains uncertain, as concerns about the U.S. government's fiscal sustainability persist. The proposed tax cuts by Republican lawmakers are expected to drive federal debt to record highs in the coming years, further weakening the rationale for purchasing long-term U.S. Treasuries.

Despite recent stabilization in Treasury yields, the market continues to reflect concerns about the U.S. government's borrowing needs. The potential for further outflows of foreign capital from U.S. Treasuries remains a risk, as evidenced by the continued selling of U.S. Treasuries by foreign official institutions since late March. The upcoming TIC reports may provide further insights into the evolving dynamics of foreign investment in U.S. Treasuries.