Diverging Global Demand for U.S. Treasuries: Opportunities in a Shifting Geopolitical and Monetary Landscape

The global demand for U.S. Treasuries remains a cornerstone of international finance, even as geopolitical tensions and economic realignments reshape the landscape. Here's the deal: despite the noise around “decoupling” and “de-risking,” foreign investors continue to flock to Treasuries as a safe haven, even in 2025. According to a report by Northern Trust, total foreign holdings of U.S. , . This trend defies the “Sell America” narrative and underscores the enduring appeal of U.S. debt, even amid a fractured global order.

: The U.S.-China Trade War's Lingering Shadow

The U.S.-China trade war, which began in 2018, has left a lasting imprint on global supply chains and Treasury demand. Data from Reuters reveals that U.S. tariffs of up to 60% on Chinese goods forced companies to reorient production to countries like Vietnam, Mexico, and IndiaForeign demand for US Treasuries holds off bond …^[2]. While this has reduced China's dominance in U.S. manufacturing, it hasn't erased its role in critical sectors such as semiconductors and rare earth elements. The U.S. has imposed export controls to curb China's technological rise, while Beijing accelerates its “Made in China 2025” agendaForeign Demand for U.S. Treasuries: Facts vs. Fears^[1].

Yet, these tensions haven't dented demand for Treasuries. China remains the third-largest holder of U.S. debt, while the U.K. has surged to second place, driven by pension funds and banks seeking stabilityU.S. Bonds Are Still Popular - Northern Trust^[3]. The key takeaway? Even as nations recalibrate trade relationships, the U.S. dollar's status as the world's reserve currency remains unshaken.

The : A Catalyst for Energy and Economic Volatility

The Russia-Ukraine war has disrupted global energy markets and slowed economic growth, but its direct impact on Treasury demand remains murky. A report by the OECD notes that the war caused a “massive energy shock,” particularly in EuropeConsequences of the War in Ukraine: The Economic …^[4], yet no source explicitly links this to a shift in foreign Treasury holdings. What we do know is that volatility in commodity markets has pushed investors toward safe-haven assets. While U.S. Treasuries haven't seen a dramatic spike in demand tied to the war, the broader search for stability in uncertain times ensures their relevance.

Implications for : Diversification and Rate Hikes

The geopolitical reallocation of trade and capital has two key implications for bond markets. First, diversification is no longer optional—it's a necessity. As the U.S. and its allies pivot away from China, countries like Brazil and India are emerging as new trade partnersForeign demand for US Treasuries holds off bond …^[2]. This fragmentation could lead to divergent monetary policies, complicating the global yield curve.

Second, the Federal Reserve's rate hikes in 2025 will test the resilience of Treasury demand. With U.S. public debt near record levels, higher rates could strain foreign buyers, particularly in emerging markets. However, the private sector's appetite for Treasuries—driven by their liquidity and creditworthiness—suggests a buffer against such risksForeign demand for US Treasuries holds off bond …^[2].

The Bottom Line: as a Hedge in a Fractured World

Investors should treat U.S. Treasuries as a hedge against geopolitical uncertainty, not a static asset. While the U.S.-China rivalry and energy shocks will continue to ripple through markets, the data shows that demand for Treasuries remains robust. The real opportunity lies in balancing this demand with exposure to emerging markets that are benefiting from trade reconfigurations—think Vietnam, India, and Mexico.

But here's the catch: don't ignore the risks. A potential slowdown in China, a prolonged war in Ukraine, or a Fed pivot could all disrupt this equilibrium. Stay nimble, diversify across geographies, and keep a close eye on the Fed's playbook. In a world where “safe” is relative, U.S. Treasuries still offer a solid floor—but not a ceiling.