Foreign demand for US Treasury debt

Foreign holdings of US Treasuries declined in June, falling to $9.299 trillion from $9.371 trillion in May. This decrease was driven by a reduction in net Treasury inflows, which dropped from $56.6 billion to $6.8 billion during that period.

The three largest foreign holders—Japan, the United Kingdom, and China—all reduced their positions. Japan’s holdings decreased by 2.3% to $1.116 trillion, while the United Kingdom trimmed its position by approximately 1%. China’s holdings fell 4% to $633.4 billion, marking the lowest level since September 2008. Reported factors for these shifts include geopolitical tensions and uncertainty regarding US fiscal sustainability and Federal Reserve policy.

Investor behavior has shown a pivot toward equities; while total foreign capital inflows into US financial markets reached $133.5 billion in June, funds were primarily directed toward US stocks ($181.4 billion) rather than government debt. Specifically, foreign investors sold $29 billion in short-term Treasury bills in June, following a $43.5 billion sale in May.

This trend occurs alongside a long-term decline in the role of foreign official institutions. Official foreign holdings of US Treasury securities have dropped to approximately 12% of outstanding debt, down from roughly 40% following the 2008 financial crisis. As total federal debt approaches $40 trillion, the diminishing share of traditionally stable foreign government buyers may increase volatility and borrowing costs. Consequently, the growing stablecoin market—led by issuers like Tether, which holds approximately $115 billion in Treasury bills—is viewed as a potential emerging source of consistent demand.