US Treasuries Have Become Unappetizing for Foreign Central Banks and Governments
Foreign demand for U.S. Treasuries is being questioned as official foreign holdings have flattened relative to the rapidly growing U.S. debt load, prompting concerns about waning appetite for dollar-denominated “safe” assets and the erosion of America’s financial “exorbitant privilege.” Critics of this view point to absolute foreign holdings still rising and the lack of any comparably deep, liquid alternative, arguing that global trade imbalances and the need for reserve assets will keep Treasuries in demand. Underneath the data debate are broader worries about de‑dollarization, the fading petrodollar system, shifting geopolitical trust in the U.S., and the absence of a clear successor for the dollar-centric order.
Data on foreign Treasury demand
- Some argue the article’s thesis is wrong: foreign Treasury holdings total about $9.7T and rose by ~$500B in the last year, with auctions oversubscribed and “risk‑free” dollar assets still heavily bought.
- Others point to charts showing foreign official (central bank/government) holdings flat or down since ~2012 while total Treasury supply has tripled; they say this supports the “less appetizing” claim.
- Counterpoint: percentage shares are distorted by quantitative easing (Fed buying huge amounts), and shifts between Treasuries, agency debt, and other dollar assets are portfolio choices, not clear rejection.
- Consensus in the thread: any “turning point” is unclear; there may be a phase shift but no obvious crisis signal yet.
Why foreign sectors hold Treasuries
- A recurring explanation: foreign accumulation of US debt is an accounting consequence of trade surpluses.
- Exporters that want weak currencies and large surpluses must recycle dollars into dollar assets; that pushes ongoing foreign demand for US liabilities.
- Treasuries remain the deepest, most liquid dollar instrument for central banks needing a stash they can sell quickly in dollar shortages.
Petrodollar, energy transition, and currency mechanics
- One side emphasizes that oil priced in USD historically boosted dollar demand and Treasury recycling, but global shifts to Chinese-made clean tech may gradually reduce that.
- A detailed counterargument claims pricing currency is largely irrelevant; what matters is where surplus proceeds are stored. If oil were priced in another currency but surpluses still parked in US assets, net demand for dollars would be unchanged.
Bond yields and interpretation
- Rising Treasury yields are noted; some read this as reduced demand relative to surging supply.
- Others stress yields have risen globally, so relative movements matter more than absolute, and that for sovereigns yields mostly reflect inflation expectations, not default risk.
De‑dollarization, alternatives, and geopolitics
- Several commenters say “de‑dollarization” is overstated in the data, but acknowledge more actors wanting to diversify away from US dependence, especially after US “weaponization” of the dollar.
- Alternatives discussed: euro (partial but fragmented), yuan (blocked by capital controls and China’s export model), gold (growing but problematic as a monetary anchor), and Keynes‑style international clearing currencies; Bitcoin is briefly floated then criticized as volatile and crime‑linked.
- EU “strategic autonomy” is seen as rising in rhetoric, but constrained by NATO dependence and lack of an EU army; US political volatility is viewed as eroding trust yet not (yet) dislodging the dollar.