China, Japan Lead $36.3B Foreign Treasury Sell-Off in March
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Fazen Markets Editorial Desk
Collective editorial team · methodology
Fazen Markets Editorial Desk
Collective editorial team · methodology
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Foreign holdings of US Treasury securities declined by $36.3 billion in March 2026, according to data released by the US Treasury Department. The sell-off was primarily driven by reductions from Japan and China, the two largest foreign creditors to the United States. Japan’s holdings fell by $16.5 billion, while China’s portfolio decreased by $12.8 billion. The data highlights ongoing shifts in global capital allocation amid divergent monetary policy paths.
The March sell-off continues a volatile pattern in foreign demand for US government debt. In February, foreign accounts were net buyers, adding $20.1 billion, which makes the March reversal more pronounced. The current macroeconomic backdrop features a Federal Reserve holding its policy rate steady above 5%, while the Bank of Japan has begun a gradual tightening cycle and China maintains accommodative policies to support its economy.
This divergence creates a catalyst chain for Treasury sales. Japanese investors face a stronger incentive to keep capital at home as domestic yields rise, reducing the hedging cost advantage of buying US assets. For China, ongoing capital outflows and efforts to support the yuan necessitate selling dollar-denominated assets. Geopolitical tensions also contribute to a strategic reassessment of reserve holdings, though the US dollar's status as the primary reserve currency remains intact.
The last comparable significant coordinated sell-off occurred in the first half of 2022, when combined sales from Japan and China exceeded $100 billion over six months amid aggressive Fed rate hikes. The current pace, if sustained, would approach those levels, raising questions about long-term demand for US debt issuance.
The Treasury International Capital (TIC) data for March 2026 provides a detailed breakdown of the $36.3 billion net sell-off. Japan's holdings fell to $1.095 trillion, down from $1.111 trillion in February. China's holdings declined to $848 billion, their lowest level since 2009. The United Kingdom, often a financial intermediary hub, increased its holdings by $18.2 billion, partially offsetting the overall decline.
| Country | March Holdings ($B) | Change from February ($B) |
|---|---|---|
| Japan | 1,095 | -16.5 |
| China | 848 | -12.8 |
| UK | 682 | +18.2 |
| Luxembourg | 347 | -4.1 |
Private foreign investors were net sellers of $22.4 billion in long-term US securities during the month. This occurred even as the yield on the benchmark 10-year Treasury note traded in a range between 4.25% and 4.45%, offering what many analysts consider an attractive yield by historical standards. The lack of private foreign buying at these levels signals a shift in sentiment beyond mere yield considerations.
The reduction in foreign buying places more pressure on domestic buyers to absorb US government debt issuance. This is a net positive for primary dealers like Goldman Sachs (GS) and JPMorgan Chase (JPM), which earn fees from underwriting, but it can squeeze margins if they are forced to hold more inventory. Sustained foreign selling could lead to a steeper yield curve, particularly at the long end, as dealers demand higher compensation for duration risk.
A key counter-argument is that the UK's significant purchases demonstrate that global demand for US Treasuries remains strong, merely shifting through different channels. The data for a single month can be volatile and subject to revision. The overall trend, however, suggests a gradual diversification away from the US dollar by some major holders.
Positioning data shows hedge funds have increased short bets on long-dated Treasury futures, anticipating further yield rises. Real money accounts, including pension funds, have been steady buyers on yield spikes above 4.4%, creating a technical battle that amplifies market volatility. Flow analysis indicates money moving into European sovereign bonds and gold as alternatives.
The next TIC data release, covering April 2026, will be critical for confirming if the March sell-off is a one-off or the start of a new trend. Market participants will watch the Federal Open Market Committee (FOMC) meeting on June 18, 2026, for any signal of rate cuts, which could renew foreign interest in Treasuries.
Key yield levels to monitor are 4.5% on the 10-year note and 4.8% on the 30-year bond. A sustained break above these technical resistance levels could accelerate selling and test the appetite of domestic buyers. The USD/JPY exchange rate is another crucial indicator; a weaker yen below 150 could trigger further Japanese selling to capture FX gains.
Upcoming US inflation data on June 12 will directly influence Fed expectations. A hotter-than-expected print would reinforce the higher-for-longer narrative, likely extending the foreign selling pressure observed in March.
Foreign selling of US Treasuries, particularly in the 10-year sector, puts upward pressure on yields. Since US 30-year fixed mortgage rates are benchmarked against the 10-year Treasury yield, this can lead to higher borrowing costs for homeowners. A 50 basis point rise in the 10-year yield typically translates to a 25-40 basis point increase in mortgage rates, impacting housing affordability and slowing refinancing activity for lenders like Rocket Companies (RKT).
Japan’s holdings peaked at nearly $1.33 trillion in November 2021. China’s holdings reached an all-time high of $1.32 trillion in November 2013. The current levels for both nations are significantly below these peaks, reflecting a multi-year trend of diversification. The combined holdings of Japan and China are now approximately $1.94 trillion, down from a peak of over $2.5 trillion a decade ago.
Yes, while Japan and China are the largest holders, collective action by smaller nations can have a significant impact. For example, a group of oil-exporting nations, including Saudi Arabia and Norway, hold substantial reserves in Treasuries. In 2025, concerted buying from these nations helped cap a rise in yields. The actions of Belgium and Luxembourg, which often custody assets for international investors, also provide important signals about global capital flows.
Major foreign creditors are reducing US Treasury exposure, shifting debt absorption pressure to domestic buyers.
Disclaimer: This article is for informational purposes only and does not constitute investment advice. CFD trading carries high risk of capital loss.
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