U.S. Treasury Market Resilience: Why Foreign Investors Keep Buying Despite Challenges

The latest U.S. Treasury International Capital (TIC) data for February 2025 reveals a striking trend: despite geopolitical tensions, shifting monetary policies, and a strengthening U.S. dollar, foreign investors continue to acquire U.S. Treasuries. Net purchases of long-term U.S. securities by foreign private investors surged to $166.1 billion, offsetting $23.4 billion in net sales by official institutions. Total foreign inflows reached $284.7 billion, underscoring the enduring appeal of U.S. government debt.

The Numbers Tell a Story of Resilience

Foreign holdings of U.S. Treasury bills rose by $73.2 billion in February, with Japan ($1.12 trillion), China ($776.5 billion), and the U.K. ($728.3 billion) remaining top holders. Notably, Luxembourg and the Cayman Islands—often used as intermediaries for offshore transactions—saw significant increases, hinting at indirect demand from other regions. Even as China’s holdings dipped slightly from January, they remain near record levels, reflecting a strategic balancing act between reserve management and geopolitical risk.

This chart would show how yields have fluctuated alongside foreign buying, illustrating the inverse relationship between rates and demand.

Why the Appetite Persists

1. Safe Haven Demand: Geopolitical instability—from China-U.S. trade disputes to Middle East tensions—fuels demand for low-risk assets. Treasuries remain the deepest and most liquid market for global investors seeking capital preservation.
2. Yield Advantage: While U.S. yields are near historic lows, they still outperform negative-yielding European bonds and Japanese government bonds. The February inflows coincided with a 10-year Treasury yield hovering around 4.0%, offering a competitive return.
3. Dollar Dominance: The U.S. dollar’s role as the global reserve currency ensures Treasuries remain a cornerstone of central bank reserves. Even as central banks diversify, reducing dollar exposure is a gradual process.

The Caveats: Custodial Data and Hidden Flows

The TIC data’s limitations are critical to note. Holdings in Luxembourg and the Cayman Islands may mask the true origin of purchases, as securities held via third-country custodians distort country-level attribution. For instance, China’s reported $776.5 billion in holdings could understate actual purchases if managed through intermediaries.

This visualization would highlight how private investors have increasingly driven demand, countering central bank hesitancy.

Looking Ahead: Risks and Opportunities

The March 2025 TIC data, due May 16, will test whether February’s surge is a blip or a trend. Key risks include:
- Fed Policy Uncertainty: If the Fed pauses rate hikes, yields could drop, boosting Treasury prices. However, inflation surprises might reignite volatility.
- Geopolitical Escalation: Any significant deterioration in U.S.-China relations or energy markets could trigger a flight to Treasuries.

Conclusion: A Pillar of Global Capital Markets

Foreign investors’ continued buying of U.S. Treasuries, despite challenges, reflects the market’s unmatched depth and safety. With $8.34 trillion in foreign holdings as of February 2025—$3.85 trillion of it from official institutions—Treasuries remain a bedrock for global portfolios. While custodial data clouds precise attribution, the macro trends are clear: the U.S. Treasury market’s resilience is rooted in its role as the world’s ultimate risk-off asset.

For investors, this means Treasuries will remain a key diversifier even as alternatives like corporate bonds and equities face headwinds. As central banks navigate a fragile global economy, their need for liquid, low-risk reserves ensures Treasuries’ place at the heart of capital markets—for now.

This long-term view would highlight the scale of foreign ownership relative to global economic growth, illustrating Treasuries’ enduring role in the financial system.