Don’t Be Misled by Headlines Claiming “Foreign Investors are Selling U.S. Treasuries”: The Truth and Logic Behind the Data
Hello everyone, I’m your financial analyst. Recently, there’s been a lot of buzz in the financial community about how the war in the Middle East, rising oil prices, and renewed inflation in the U.S. have caused a sharp drop in the price of U.S. Treasuries (with yields soaring), leading many to wonder: “Are foreign investors scared and selling U.S. government bonds in droves?”
This seems logical and intuitive, but it’s completely wrong.
According to the latest International Capital Flows (TIC) report released by the U.S. Treasury Department, in the first half of 2026, foreign investors not only didn’t sell U.S. Treasuries on a large scale but actually made net purchases. The so-called “decrease in balance” is largely due to the book value reduction caused by the falling prices of U.S. Treasuries, not because they actually took their money out.
Today, we’ll break down the truth behind this using simple language and analyze it from five different perspectives.
---
1. The Core Misconception: Confusing “Falling Prices” with “Investors Leaving”
Many news headlines say that “the balance of foreign holdings of U.S. Treasuries has decreased.” This is like saying, “Since the value of your stock account has dropped, you sold your stocks.” The logic doesn’t hold water.
1. Decrease in Balance ≠ Actual Sales
As of the end of June 2026, the balance of foreign holdings of U.S. Treasuries was $9.30 trillion. Although it’s $190.4 billion less than the peak at the end of February, it’s actually $29.4 billion more than at the end of 2025.
Why is there this situation where it seems like there’s a decrease, but in reality, there’s an increase?
- On the Transactional Level (Real Money): In the first half of the year, foreign investors actually made a net purchase of $154.4 billion.
- On the Valuation Level (Book Value): Due to the soaring yields of U.S. Treasuries, their prices plummeted. It’s like your house’s value dropped from $1 million to $900,000; you didn’t sell the house, but the total value of your assets did decrease by $100,000. In the first half of the year, this “negative valuation effect” reduced the book value of foreign holdings of U.S. Treasuries by $124.9 billion.
2. A Historical Lesson from 2022
In 2022, when the Federal Reserve aggressively raised interest rates, U.S. Treasury prices collapsed. At that time, there were also rumors that foreign investors were selling tens of billions of dollars worth of U.S. Treasuries. However, subsequent data showed that they actually made a net increase of $716.6 billion in holdings, setting a new record. It was just that the price drop was so severe that the balance, calculated based on market value, decreased significantly.
Conclusion: If you only look at the change in “balance,” you might conclude that “no one wants U.S. Treasuries anymore,” which is absurd. In fact, foreign investors were buying at high prices, and it’s just that the prices have since fallen, giving the impression they lost money or left.
---
2. Who Is Buying and Who Is Selling? The Smart Strategy of “Locking in Long Positions and Selling Short”
Since foreign investors aren’t leaving, what are they doing exactly? The data reveals the different behaviors of two key groups:
1. Private Investors (Such as Funds, Insurance Companies): Prefering Long-Term Bonds
- Actions: They made a net purchase of $178.2 billion in medium- and long-term U.S. Treasuries but sold $23.9 billion in short-term U.S. Treasuries.
- Logic: This is a typical “locking in long positions and selling short” strategy.
- Long-term U.S. Treasuries offer higher yields (more interest), so private investors find them attractive and buy them to lock in higher returns.
- Short-term U.S. Treasuries have relatively lower yields and better liquidity, so they might prefer to buy U.S. stocks (which hit new highs in the first half of the year and were more attractive).
- Note: Overall, private foreign investors made a net purchase of $185.9 billion, although it’s slightly less than before because U.S. stocks were so appealing and drew some of their funds.
2. Official Investors (Such as Central Banks): Forced to “Sacrifice” to Maintain Stability
- Actions: They sold $31.5 billion in U.S. Treasuries.
- Logic: This isn’t because they’re bearish on the U.S.; rather, it’s a defensive move.
- The unstable situation in the Middle East and rising energy prices have put significant pressure on the currency values of many countries.
- To stabilize their domestic currencies, these central banks had to sell U.S. Treasuries to exchange for dollars and then buy their own currencies in the market.
- This is a defensive action, not a strategic withdrawal. Moreover, the scale of their sales decreased by 30.4% compared to the previous period, indicating that the pressure is easing.
---
3. Is “De-Dollarization” a Myth? Dollar Assets Are Still Attractive
Many people use the fact that “gold reserves have surpassed U.S. Treasuries” to argue for “de-dollarization.” But if you look at the overall dollar foreign exchange reserves, you’ll see that the attractiveness of U.S. assets remains strong.
1. Dollar Reserves Are More Than Just U.S. Treasuries
Global dollar foreign exchange reserves include:
- U.S. Corporate Equity (U.S. Stocks): 34.1%, the second-largest asset.
- U.S. Government Agency Bonds: 7.1%.
- U.S. Corporate Bonds: 3.5%.
- Dollar Deposits: For example, the money held by the Bank of Japan in U.S. banks (not fully counted in the TIC report, but the amount is substantial).
2. Changes in the First Half of 2026: Shifting from “Buying Bonds” to “Buying Stocks
- Total Increase: Global dollar foreign exchange reserves increased from $6.84 trillion to $7.01 trillion.
- Structural Changes:
- Proportion of U.S. Treasuries Declined: From 55.3% to 52.6%.
- Proportion of U.S. Stocks Increased: From 34.1% to 37.1%.
- Why? Because U.S. stocks hit new highs in the first half of the year, offering better returns; U.S. Treasuries, due to high interest rates, saw their prices fall.
- Truth: Foreign investors haven’t left the dollar asset system; they’ve just shifted from “bonds” to “stocks.” This shows that they still trust the liquidity of dollar assets and are just adjusting their allocation based on market conditions.
3. The Valuation Effect Masks the Actual Increase
In the first half of the year, foreign investors actually made a net increase of $32.2 billion in dollar reserve assets.
- Of this, they increased their holdings of U.S. stocks by $51.8 billion (mainly due to rising stock prices, but also including actual purchases).
- They reduced their holdings of U.S. Treasuries by $37.4 billion (mainly due to falling prices, but also including actual sales).
Key Point: If you exclude the impact of price fluctuations, the actual reduction in their holdings of U.S. Treasuries has actually narrowed (by $4.7 billion compared to the previous period).
---
4. Japan and China: Both Reducing Exposure, but for Different Reasons
Japan and China are the two largest foreign holders of U.S. Treasuries, and their movements are closely watched. The data shows that both countries are reducing their exposure to U.S. risks, but this is not “anti-U.S.”; rather, it’s about risk management and asset allocation optimization.
1. Japan: Selling Bonds to Protect the Currency, but Increasing Holdings of U.S. Stocks
- Reason for Selling Bonds: At the end of April and beginning of May, the yen depreciated significantly. The Japanese government spent about $74 billion intervening in the currency market by selling short-term U.S. Treasuries to buy dollars.
- Asset Structure: Among the long-term U.S. securities held by Japanese investors, U.S. stocks account for the highest proportion (45.1%), while U.S. Treasuries account for only 35.9%.
- Actual Actions: In the first half of the year, Japanese investors sold $73.4 billion in long-term U.S. securities (mainly bonds and a small amount of stocks), but the positive valuation effect (increased book value due to rising stock prices) was as high as $126 billion.
Conclusion: Japan hasn’t abandoned U.S. assets; they just exchanged some U.S. Treasuries for cash to support the yen and continued to hold a large portion of U.S. stocks.
2. China: Gradually Reducing Holdings, but to a Smaller Scale
- Reason for Selling Bonds: Chinese investors sold $55.2 billion in U.S. Treasuries in the first half of the year, with long-term U.S. Treasuries accounting for 73% of this amount. This aligns with China’s long-term strategy of gradually reducing the proportion of U.S. assets in its foreign exchange reserves.
- Asset Structure: Among the long-term U.S. securities held by Chinese investors, U.S. Treasuries account for the highest proportion (52.5%), while U.S. stocks also account for 34.4%.
- Actual Actions: Chinese investors sold $49.5 billion in long-term U.S. securities, but the positive valuation effect (rising stock prices) offset most of the book loss.
- Comparison:
- Japan’s exposure to U.S. risks: 7.65% (relatively high).
- China’s exposure to U.S. risks: 2.97% (relatively low).
Key Point: The absolute scale of China’s reduction is much smaller than Japan’s. Moreover, China’s net debt to the U.S. ($840.7 billion) has decreased by 38.3% from its peak, while the U.S.’s net debt to Japan ($1.38 trillion) has also decreased, but to a smaller extent.
- Example: The UK! The U.S.’s net debt to the UK has reached a record high of 10.87%, indicating that “reducing exposure to the U.S.” is not a universal trend; the UK is actually increasing its allocation to the U.S.**
5. Why Have U.S. Treasury Yields Soared? Don’t Blame Foreign Investors
Finally, let’s answer a fundamental question: Why have U.S. Treasury yields soared (and prices plummeted) since 2026?
Many say it’s because of “foreign investors selling,” but that’s just the surface reason. The real drivers are these four factors:
1. Deepening Fiscal Imbalances in the U.S.: The U.S. government’s debt is growing like a snowball, and markets are worried that the U.S. might be unable to repay it or might print money, leading to inflation in the future. As a result, investors demand higher risk compensation (i.e., higher yields).
2. Rekindled Inflation Risks: The unstable situation in the Middle East has caused energy prices to rise, increasing inflation expectations. High inflation reduces the real purchasing power of bonds, so investors naturally demand higher nominal yields.
3. Erosion of the Fed’s Credibility: The Federal Reserve has struggled to balance inflation and economic growth, and market confidence in its policy path has declined, leading to an increase in the term premium (the extra yield required for longer-term bonds).
4. The Crowding Out Effect of AI Investment: The surge in capital expenditure in the AI sector has attracted a large amount of funds to tech stocks (U.S. stocks), causing funds to flow out of the bond market and into the stock market. This is why we see the phenomenon of “foreign investors selling bonds and buying stocks.”
In Summary:
Foreign investors can’t be blamed for the soaring yields of U.S. Treasuries. The increase in yields is the result of a combination of internal U.S. fiscal issues, inflation, monetary policy, and global AI-related capital flows.
Implications for the Average Person:
1. When looking at data, focus on “net purchases/sales,” not just changes in balance. Balance is greatly affected by prices and can mislead judgment.
2. De-dollarization is a slow process, not an immediate one. Global dollar reserves remain huge, and the structure is improving (shifting from bonds to stocks), not a complete withdrawal.
3. The actions of central banks are often tactical: For example, Japan is selling bonds to support the yen, and China is selling bonds to optimize its reserve structure; neither is because the U.S. is on the verge of collapse.
4. Pay attention to the crowding out effect of AI on capital flows: In the coming period, U.S. stocks may continue to perform well, while U.S. Treasuries may face ongoing pressure on yields until inflation and fiscal issues are substantially resolved.
I hope this analysis helps you see through the headlines and understand the underlying realities.