Is China Withdrawing From US Treasuries?

While Chinese investors are increasingly diversifying away from US Treasuries toward European and other assets, driven by trade war uncertainties and attractive yields elsewhere, there is no evidence of a large-scale Chinese withdrawal from the US bond market. The gradual reduction in China’s Treasury holdings reflects a strategic reallocation rather than a retaliatory dump. Economic interdependence, the risks of market disruption, and US countermeasures make a massive sell-off improbable. As trade tensions persist, the bond market will remain sensitive to US-China developments, but for now, China’s actions appear measured, prioritizing long-term stability over short-term geopolitical leverage.

The intensifying US-China trade war has sparked speculation about whether China is withdrawing from the US bond market by divesting its holdings of US Treasury securities. As the second-largest foreign holder of US debt, with approximately $760 billion in Treasuries as of January 2025, China’s actions could significantly impact global financial markets.

The volatility in the bond market, driven by President Donald Trump’s aggressive tariff policies and subsequent partial suspension of comprehensive import tariffs for 90 days, has raised doubts about the dollar’s status as a safe-haven asset. Reports indicate that Chinese investors are diversifying toward European and other markets, but a large-scale withdrawal remains unlikely due to economic and geopolitical constraints.

Background on China’s Treasury Holdings and Market Volatility

China’s holdings of US Treasuries, peaking at over $1.3 trillion in 2013, have gradually declined to $760 billion by January 2025, according to official data. This reduction aligns with China’s strategy to diversify its foreign exchange reserves, including increased gold purchases and investments in alternative assets. The recent trade war escalation, marked by 145% US tariffs on Chinese goods and China’s retaliatory 125% tariffs, triggered a bond market sell-off, pushing the 10-year Treasury yield to 4.592%—its highest since February 2025. Social media posts in early April 2025 speculated that China was dumping Treasuries, contributing to this yield spike.
Additionally, dollar-denominated assets have faced significant pressure in recent weeks, with growing skepticism about their safe-haven status following Trump’s broad attack on global trade.

China’s Role in Bond Market Turmoil

China has become a focal point for bond market analysts and traders in recent weeks, with debates centering on its potential role in the chaos gripping the US Treasury market. The sharp sell-off following Trump’s April 2, 2025, tariff announcement fueled speculation that China might be among the sellers, particularly after heavy selling in Asia on April 9, 2025. However, the US Treasury Secretary, in an April 15, 2025, interview, refuted claims that foreign governments, including China, were aggressively selling Treasuries, arguing that a large-scale sell-off would strengthen the yuan, conflicting with China’s efforts to maintain a competitive currency. Despite this, heightened volatility has led some Chinese investors to view current Treasury yields as attractive, though they remain cautious due to the unpredictability of Trump’s economic and trade policies.
Chinese Investors Diversifying to European Markets
Reports indicate that many Chinese investors are reducing their exposure to US Treasuries in favor of European debt instruments amid the trade war. The share of the US dollar in Chinese investors’ portfolios has declined as they explore other markets. High-grade European bonds, Japanese government bonds, and gold are emerging as viable alternatives to US Treasuries. Chinese investors are increasingly eyeing German, Spanish, and Italian bond markets—previously overlooked—due to improved European market outlooks. Germany’s approval of a historic spending package and the potential for further interest rate cuts by European authorities have bolstered confidence in European assets. Given macroeconomic factors, now is seen as a time to reassess Chinese investors’ allocations toward more investable countries.
Why a Large-Scale Sell-Off Is Unlikely
Despite the diversification trend, a massive sell-off of US Treasuries by China is unlikely. Selling large quantities would risk devaluing China’s remaining dollar-denominated assets and triggering global market instability. Such a move would harm China’s own financial interests as much as the US, given their economic interdependence. China’s domestic economic challenges, including trade war impacts and slowing growth, require careful reserve management. Official data from April 13, 2025, shows China’s credit expansion in March, driven by bond offerings, aims to offset tariff effects, suggesting a focus on domestic stabilization over aggressive foreign asset liquidation. The US’s ability to counteract rising yields through bond purchases, as seen during past crises, further diminishes the impact of a potential sell-off.
Strategic and Geopolitical Considerations
China’s bond market strategy is shaped by a balance of economic needs and geopolitical leverage. While selling Treasuries could fund domestic stimulus, it risks losses on bond values and reduced global financial influence. The interconnected US-China economic relationship means that destabilizing the US bond market could backfire, affecting China’s export-driven economy. Instead, China appears to be prioritizing domestic consumption and fiscal spending, as evidenced by recent policy shifts. The cautious approach of Chinese investors reflects uncertainty about US policy direction under Trump, prompting a gradual shift toward safer, diversified assets rather than a dramatic exit from the US bond market.

Market Resilience and Countermeasures

The US bond market’s depth and liquidity provide resilience against potential disruptions. Even if China were to sell a portion of its Treasuries, other investors, such as Japan—which increased its holdings in February 2025—or domestic US institutions, could absorb the supply. The US’s tools, including bond purchases to stabilize rates, offer a robust defense, as demonstrated in past crises. Moreover, a senior US monetary official in April 2025 indicated no immediate need to alter monetary policy, signaling confidence in the market’s stability. These factors suggest that while Chinese diversification may contribute to short-term volatility, it is unlikely to cause a systemic crisis.