China Orders Banks to Reduce Bond Holdings, Triggering Treasury Decline

Bassyonni

Published: February 9, 2026 9:24 AM ET

China Orders Banks to Reduce Bond Holdings, Triggering Treasury Decline

The Chinese government has advised financial institutions to decrease their holdings in US government bonds. This directive stems from concerns regarding market volatility and follows a trend of countries such as India and Brazil reducing their exposure to US assets.

Impact on Treasury Yields and Holdings

Following this announcement, the yield on 10-year Treasuries experienced a rise of up to four basis points, reaching 4.25%. The 30-year Treasury yield also increased by three basis points to 4.88%. Despite the initial selling pressure, experts suggest that the bond market remains stable.

Current State of Chinese Holdings

China’s holdings of US Treasuries have declined to $682.6 billion, the lowest since 2008.
This represents a reduction from a peak of $1.32 trillion in late 2013.
China currently ranks as the third-largest foreign holder of Treasuries, following Japan and the UK.

While the Chinese directive does not target state holdings of Treasuries, it indicates a shift in strategy. The suggestion to limit purchases aims to diversify financial risks amid a wavering confidence in US assets.

Global Investment Trends

The overall value of overseas investments in US government bonds reached record highs in November, driven by increases from Norway, Canada, and Saudi Arabia. These gains have helped to compensate for China’s declining asset holdings.

Geopolitical Context

Geopolitical factors are contributing to a cautious approach among global investors. Tensions between the US and China remain, particularly in the aftermath of President Trump’s tariff threats regarding Greenland. However, relations seem to have stabilized somewhat since a trade truce was agreed upon last year.

The Future Outlook

Market analysts suggest that while China may gradually reduce Treasury purchases, significant disruptions are not anticipated. This reflects a broader trend of cautious asset management in response to evolving global economic landscapes. As Martin Whetton from Westpac Banking Corp noted, the liquidity needs of Chinese financial institutions continue to necessitate holdings of US dollars.

In conclusion, while the immediate future appears stable, ongoing adjustments in investment strategies may influence global financial dynamics. The situation remains fluid as countries reassess their portfolios in light of geopolitical and economic developments.