UK Surpasses China in US Treasury Holdings for First Time Since 2000

China’s holdings of US Treasury securities have fallen below those of the United Kingdom for the first time since 2000, marking a significant shift in the global ownership of American government debt. This development comes amid growing geopolitical friction, economic uncertainty, and investor unease about the trajectory of US fiscal policy.

Recent data from the US Treasury Department shows that China’s holdings declined to $765.4 billion in March, a drop of nearly $19 billion from February. In contrast, the UK increased its stake to $779.3 billion, making it the second-largest foreign holder of US Treasuries behind Japan. This is the first time in over two decades that the UK has held more US debt than China.

Shifting Trends Amid Market Volatility

The reversal in rankings coincides with a period of heightened volatility in global financial markets, partly triggered by the US administration’s intensifying trade measures. Former President Donald Trump’s tariff campaign, aimed at reducing US trade deficits and pressuring China on various economic fronts, contributed to a sharp rise in bond yields and a broad sell-off in Treasuries. His policy rollout, presented as an economic turning point, amplified investor fears about inflation and fiscal sustainability.

Despite these pressures, international interest in US debt remained strong during March. Total foreign holdings rose by over $233 billion, bringing the total to a record $9.05 trillion. Much of this increase was attributed to private investors purchasing both long- and short-term US securities, resulting in net foreign inflows of $254.3 billion for the month.

Japan continued to lead all foreign holders, expanding its portfolio to $1.1308 trillion. Other countries, including Canada and Belgium, also increased their investments. Belgium, which some analysts consider a possible channel for Chinese custodial holdings, added $7.4 billion to reach $402.1 billion. The Cayman Islands, a well-known base for hedge funds, recorded a $37.5 billion increase, reaching $455.3 billion in total.

Strategic Reallocation and Long-Term Implications

Although the overall volume of foreign-held US debt increased, the underlying structure is shifting. China has been steadily reducing its direct exposure since peaking at over $1.3 trillion in 2011. This long-term decline reflects Beijing’s ongoing effort to diversify its vast foreign currency reserves and lower its reliance on dollar-denominated assets. Many analysts believe a portion of China’s holdings is now routed through third-party custodians in financial hubs such as Belgium and Luxembourg, making the true figure more difficult to determine.

April’s market fluctuations further highlighted global concerns about US financial governance. Yields on 10-year Treasuries rose sharply to 4.59 percent—the highest since February—while the 30-year bond briefly exceeded 5 percent, reaching levels not seen since 2023. These spikes reflected investor anxiety over the effects of protectionist economic policies, rising budget deficits, and the possibility of inflation outpacing expectations.

This uncertainty was compounded by a downgrade in the US credit rating by Moody’s, which lowered it from AAA to Aa1. The decision cited persistent deficits and a lack of political consensus on fiscal matters. The downgrade followed earlier actions by Fitch and S&P, reinforcing concerns that the US is on an unsustainable debt path.

While China’s gradual sell-off has been unfolding over time, financial analysts warn that a rapid acceleration in divestments could introduce greater volatility into already fragile markets. At the same time, experts suggest that China may face limitations in its ability to further reduce exposure, given the liquidity, safety, and size advantages of the US bond market.

As US-China relations remain strained, especially in light of continuing tariff disputes, the evolving pattern of Treasury ownership underscores broader changes in international capital flows. The repositioning of major debt holders is not just a technical development but also a reflection of the deeper, ongoing realignment in the global economic order. As diplomatic and economic tensions escalate, the financial interdependence between the world’s two largest economies appears increasingly unstable.