Foreign governments led by Japan, China liquidate US treasury holdings in March amidst Iran war

Foreign governments cut down on their US treasury holdings in March as the start of the Iran war forced them to liquidate some US Dollar reserves to protect their domestic currency.

Overall holdings of US treasuries by foreign governments fell to $9.25 trillion at the end of March from $9.47 trillion in February, according to Treasury Department data.

Japan continues to remain the largest foreign owner of US Government debt, but they too liquidated their holdings by $47 billion to $1.11 trillion at the end of March.

China, which is now the third largest holder of US treasuries, cut their holdings for the seventh month running to $652.3 billion from $693.3 billion in February. This is the lowest level of China holding US treasuries since September 2008, right at the onset of the global financial crisis.

Other countries among the top 10 holders, including Canada, Luxembourg, France, and Taiwan cut down on their holdings, while Ireland and Cayman Islands were among the few buyers in March.

A significant increase in holdings was also seen from the UK, who boosted their holdings to $926.9 billion at the end of March from $897.3 billion in February. UK is now the second-largest holder of US treasury.

“Given increased financial volatility since the start of the war in the Gulf, and resultant pressure on exchange rates, especially in Asia, it is not a surprise that US Treasury holdings by central banks have fallen,” said Frederic Neumann, chief Asia economist at HSBC.

At the end of March, foreign investors logged a $142.1 billion valuation loss on the long-term treasury holdings in March.

The rising bond yields have concerned global equities with US and other markets facing selling pressure this week. The US 10-year yield is at the highest since January 2025, while the 30-year yield is at the highest since 2007.