Is US debt still a safe haven? China nudges banks to trim Treasury holdings

Chinese regulators have quietly urged domestic banks to scale back their exposure to US government debt, a move that underscores Beijing’s growing unease over market volatility and concentration risks tied to American assets — and comes at a sensitive moment in US-China relations.  

According to a Bloomberg report dated February 9, regulators have asked some Chinese banks to curb purchases of US Treasuries and gradually reduce existing holdings. The guidance, issued weeks ahead of a planned meeting between US President Donald Trump and Chinese President Xi Jinping, reflects concerns that US debt may no longer function as a reliable safe-haven investment amid heightened geopolitical and policy uncertainty.  

Notably, the advisory was circulated even before Trump’s recent phone call with Xi and well ahead of his expected visit to Beijing in April, suggesting the move is rooted more in financial risk management than immediate diplomatic signaling. State-owned institutions, however, have not received similar directives, the report said.  

Growing doubts over US bonds as a safe haven  

Chinese officials have warned banks about the potential for “shock swings” in US markets, citing volatility driven by political risk and policy unpredictability. The concerns echo a broader reassessment among global investors over the long-term stability of US government debt.  

In January, a Deutsche Bank analyst cautioned that European banks could also begin trimming US bond holdings, pointing to Trump’s renewed push for aggressive trade tariffs and controversial foreign policy proposals — including discussions around Greenland — as factors unsettling investor confidence.  

China’s own exposure to US Treasuries has already declined sharply over the past decade. Official US data show China-based investors’ Treasury holdings have fallen to $682.6 billion, the lowest level since 2008, from a peak of $1.32 trillion in late 2013. Despite the decline, China remains the third-largest foreign holder of US government debt, behind Japan and the UK.  

When combined with China’s holdings of US agency bonds and equities, its overall investment in American securities has remained broadly stable since late 2023 — suggesting a rebalancing rather than a wholesale retreat.  

Foreign demand for US debt remains strong — on paper  

At a global level, overseas holdings of US government bonds rose to a record high in November, according to data from the US Department of the Treasury. Increased purchases by Norway, Canada, and Saudi Arabia more than offset China’s continued reductions.  

Japan has emerged as the largest foreign holder of US Treasuries, with holdings exceeding $1.2 trillion and recent data showing further increases. The UK and Belgium have also climbed rapidly up the rankings, reinforcing the perception of strong European demand for US debt.  

However, analysts caution that these figures can be misleading.  

Much of the rise in holdings attributed to London and Brussels reflects their role as global custody and settlement hubs rather than actual ownership. Large clearing systems based in the UK and Belgium hold assets on behalf of investors worldwide, including institutions based in Asia. As a result, securities recorded in these jurisdictions may not represent European capital flows into US debt.  

With Trump and Xi set to engage in high-stakes talks later this year, the timing of the directive adds another layer of complexity to already strained economic ties. Whether the move remains a technical adjustment or evolves into a strategic financial lever will be closely watched by markets worldwide.