China Tells Banks to Pull Back From U.S. Treasuries—Markets Hear a Dollar Warning

Global bond markets felt a jolt after reports that Chinese regulators quietly urged domestic banks to rein in their exposure to U.S. government debt, reigniting fears that the world’s second-largest economy is slowly stepping back from America’s financial orbit.

The reaction was swift. U.S. Treasuries extended losses, pushing yields higher across the curve. The benchmark 10-year yield climbed as much as four basis points to 4.25%, before settling near 4.22% in London trading. The 30-year yield rose three basis points to 4.88%, while the Bloomberg Dollar Spot Index slipped 0.2%, signaling a modest retreat in the greenback.

According to people familiar with the discussions, Chinese officials advised financial institutions to limit new purchases of U.S. Treasuries and asked banks with heavy exposure to gradually pare positions. The guidance came amid concerns about market volatility and was framed as a risk-diversification measure, not a political statement.

Importantly, the directive does not apply to China’s state reserves, and regulators reportedly set no specific targets or timelines, reinforcing the message that this is about caution—not confrontation.

Still, markets are listening closely.

The move fits into a growing global pattern. Countries such as India and Brazil have already been trimming exposure to the world’s largest bond market, as investors reassess the long-term appeal of U.S. assets. Rising geopolitical tensions—including President Donald Trump’s recent threats over Greenland—have only deepened the unease, accelerating interest in alternatives like gold.

“It’s the latest evidence of a pattern forming,” said Gareth Berry, strategist at Macquarie Group. “A sign that the expectation of long-term structural outflows from the dollar is not just a mirage.”

Despite the headlines, analysts caution against overreacting.

“If China was to ditch their Treasuries in a large-scale selling program, this would cause U.S. and global yields to spike and would cause major disruption to the global economy,” said Kathleen Brooks, research director at XTB.

So far, that hasn’t happened.

“The bond market is taking the view that China won’t do this,” Brooks said, adding that any reduction would likely be slow and orderly. That expectation, she noted, explains why yields remain relatively stable despite the news.

China-based investors now hold $682.6 billion in U.S. Treasuries, roughly half of the $1.32 trillion peak reached in late 2013, and the lowest level since 2008, according to U.S. data. Yet the picture is more nuanced.

Belgium’s Treasury holdings, often viewed as a proxy for Chinese custodial accounts, have quadrupled since 2017 to $481 billion. When combined with U.S. agency bonds and equities, China’s total investment in American securities has remained relatively stable since late 2023.

China remains the third-largest foreign holder of U.S. Treasuries, behind Japan and the UK.

Much of China’s remaining U.S. debt is held by official institutions, and often in short-dated securities for liquidity purposes, said Martin Whetton, head of financial markets strategy at Westpac.

“So what is left for the banks is small,” he said. “And China doesn’t exactly set the Treasury market on fire at the monthly auctions.”

Zooming out, overseas ownership of U.S. government bonds hit a record high in November, according to Treasury Department data. Fresh buying from Norway, Canada, and Saudi Arabia more than offset China’s gradual pullback.

U.S. Treasuries have also delivered solid performance, gaining 5.3% over the past 12 months, ranking behind only Singapore and Israel among major developed sovereign debt markets.

Last month, Trump warned European nations against retaliatory sales of U.S. assets tied to his tariff threats, while relations between Washington and Beijing have steadied following last year’s trade truce.

For now, strategists say China’s message is subtle—but meaningful.

“It’s still more ‘diversify’ than ‘de-dollarize,’” said Charu Chanana, chief investment strategist at Saxo Capital Markets in Singapore. “China reserves and China banks have different objectives.”

Regulators, she added, can tighten bank exposure rules even as official reserves continue to rely on liquid U.S. dollar assets.

The takeaway for markets? China isn’t slamming the door on Treasuries—but it may be quietly showing itself where the exits are.