UK overtakes China in US Treasury holdings for first time since 2000

China’s recorded holdings of US Treasuries have dropped below those of the United Kingdom for the first time in over two decades, signalling a shift in global capital dynamics and deepening concerns over geopolitical and economic tensions surrounding US fiscal policy.

According to the US Treasury Department’s latest data, China’s holdings fell to $765.4 billion in March, down $18.9 billion from the previous month. Meanwhile, UK investors increased their holdings by nearly $29 billion to $779.3 billion, overtaking China as the second-largest foreign holder of US debt behind Japan. This marks the first time since 2000 that the UK has surpassed China in US Treasury ownership.

The change coincides with a volatile period in financial markets, triggered in part by President Donald Trump’s wave of aggressive tariffs against key US trading partners, including China. The escalation—dubbed “Liberation Day” by Trump—sparked a widespread sell-off in treasuries, pushed bond yields higher, and rattled investors globally.

Foreign demand still strong

Despite the geopolitical headwinds and concerns over US debt sustainability, overall foreign appetite for US Treasuries remained robust in March. Total foreign holdings rose by $233.1 billion, reaching a record $9.05 trillion, according to the Treasury’s International Capital (TIC) report. Net inflows into US long- and short-term securities reached $254.3 billion, largely driven by private foreign investors.

Japan retained its position as the largest foreign holder, increasing its treasury stockpile to $1.1308 trillion. Canada and Belgium also increased their holdings, with Belgium—often considered a proxy for Chinese custodial accounts—adding $7.4 billion to reach $402.1 billion. The Cayman Islands, a major centre for hedge fund activity, saw holdings rise $37.5 billion to $455.3 billion.

Still, the rise in foreign holdings masks deeper structural shifts. China’s steady, long-term reduction in direct treasury ownership—from a peak of over $1.3 trillion in 2011—is widely seen as part of Beijing’s strategy to diversify its foreign reserves and reduce dependence on US assets.

Analysts believe a significant portion of Chinese holdings may now be hidden in custodial accounts in Belgium and Luxembourg.

Bond sell-off raises alarm

The market chaos in April highlighted a growing unease with US economic management. Yields on the 10-year treasury surged to 4.59 per cent, the highest since February, while the 30-year bond briefly breached 5 per cent, levels not seen since 2023.

These moves came amid investor concerns that Trump’s protectionist policies and erratic fiscal messaging could drive inflation, boost deficits, and erode the appeal of US debt.

The turmoil came days before Moody’s downgraded the US credit rating from AAA to Aa1, citing rising deficits and chronic political gridlock. That move followed similar downgrades by Fitch and S&P in previous years.

While China’s recent sales were not sudden, analysts warn that any acceleration in its unwinding of US assets could further destabilise markets. Others argue that Beijing may also be constrained in how far it can go.

Analysts caution that the full picture of China’s holdings may remain opaque for months, given the lag in TIC data and China’s use of third-party custodians. Meanwhile, hedge funds, European pension funds, and Japanese life insurers have all been named as possible contributors to the recent sell-off.

Trump’s tariffs have heightened fears of a prolonged trade conflict, with Chinese officials vowing to “fight to the end”. As markets brace for further disruptions, the shift in treasury ownership—while symbolic—serves as a broader reflection of the fraying economic relationship between the world’s two largest economies.