Why This Matters

A wholesale dumping of U.S. Treasury bonds would risk a sharp rise in interest rates for American households, since fewer buyers of U.S. debt would mean the federal government needs to pay more interest to attract investors. 

That would translate into higher rates on consumer products such as auto loans or mortgages, plus stick Congress with a bigger interest tab to fund.

However, there is “no evidence of the sell America fears carrying through to significant selling of U.S. Treasury debt,” John Canavan, lead analyst at Oxford Economics, said in an email.

Foreign investor demand “has shown no signs of declining,” he added. Japan remains the biggest holder of Treasury debt, with holdings continuing to rise through September. He also flagged a rapid rise in Treasury holdings in Eurozone countries and stabilization in Chinese holdings of Treasurys, after the past decade’s decline.

The Treasury Department released the data for August and September this week, after a delay due to the now-resolved government shutdown.

Diversification Still Happening

That doesn’t mean that investors are solely focused on U.S. markets. Investors are also putting more cash in Europe, Asia and elsewhere in the globe, a trend that’s helped cause the U.S. dollar index to weaken more than 7% this year against a basket of foreign currencies.

Bonds issued by emerging market countries are seeing large gains, as are their stock markets. A roughly 27% jump in the MSCI Emerging Markets index is its strongest gain since 2009, analysts at Yardeni Research noted this week. 

“We see an opportunity to invest broadly across EMs; but be mindful of the risks and regional disparities before leaping into positions,” they wrote, noting Korea, Colombia, Greece, and South Africa and Peru as major beneficiaries. At the same time, a few Southeast Asian countries have taken a hit.

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Global central banks are also diversifying the reserves they hold to facilitate international trade and their countries’ financial positions. The U.S. dollar remains the preeminent global currency, but central banks are increasingly holding more gold. It’s a trend that analysts say has supported this year’s rally in gold prices, though retail buyers have also flocked to the metal.

“Central banks are planning for gradual diversification rather than widespread de-dollarisation,” the Official Monetary and Financial Institutions Forum wrote this year after conducting a survey of central bankers, flagging gold as a popular alternative.

Indeed, diversifying away from the U.S. dollar doesn’t necessarily imply broad-based selling of U.S. bonds, Gennadiy Goldberg, head of U.S. rates strategy at TD Securities, wrote in a note to clients Thursday. Foreign governments and central banks seem to be buying fewer Treasury securities, the Treasury data showed, but demand is continuing among foreign investors in the private sector.

Inflows from bond funds into the United States have actually outpaced those in Canada and Europe in recent months, Goldberg wrote. He sees next year as “shaping up as a continuation of 2025,” with U.S. Treasurys outperforming bonds in other major economies and pushing down borrowing costs for U.S. households.

The de-dollarization narrative “continues to hum along under the hood,” he wrote, and it could re-emerge when Trump announces Fed Chair Jerome Powell’s replacement next year.

“The important point to keep in mind is that as long as diversification occurs amid a rising global savings pool, investors will be able to diversify their holdings without dumping Treasuries,” Goldberg wrote.