The “selling of America” ​​is over – global investors are holding on to US Treasuries

If there were any lingering thoughts that foreign investors were dumping US Treasuries – and threatening to raise interest rates for US households – the latest data from the federal government put that to rest.

New data from the Treasury Department showed foreign investors’ continued appetite for US securities, including bonds issued by the Treasury to finance the deficit. Net capital inflows amounted to more than $300 billion in August and September.

It is the latest evidence that fears of massive inflows from US government bonds after President Donald Trump’s more aggressive-than-expected tariff announcements in April have not panned out.

“‘Sell America’ was a one-week trade in April,” wrote Benjamin Schroeder, chief interest rate strategist at Dutch bank ING. “Since then, it has definitely become ‘buy America again’.”

A wholesale dumping of US Treasuries would risk a sharp rise in interest rates for US households, because fewer buyers of US debt means the federal government needs to pay more interest to attract investors.

This would translate into higher interest rates on consumer products such as car loans or mortgages, as well as requiring Congress to charge a larger interest rate to finance them.

However, there is no evidence that US concerns would lead to a significant sell-off of US Treasury debt,” John Canavan, a senior analyst at Oxford Economics, said in an email.

He added that foreign investor demand “shows no signs of abating.” Japan remains the largest holder of Treasury debt, with its holdings continuing to rise through September. He also pointed to a rapid rise in Treasury bond holdings in eurozone countries and stabilization in China’s holdings of Treasury bonds, after declining in the past decade.

The Treasury released data for August and September this week, after a delay due to the now-resolved government shutdown.

Diversification is still happening

This does not mean that investors are only focused on US markets. Investors are also putting more money into Europe, Asia and elsewhere in the world, a trend helped by the US dollar index falling more than 7% this year against a basket of foreign currencies.

Bonds issued by emerging market countries are seeing big gains, as are their stock markets. The nearly 27% jump in the MSCI Emerging Markets Index is its strongest gain since 2009, analysts at Yardeni Research noted this week.

“We see an opportunity to invest broadly in emerging markets, but must be mindful of risks and regional disparities before jumping into positions,” they wrote, citing Korea, Colombia, Greece, South Africa and Peru as key beneficiaries. Meanwhile, some Southeast Asian countries have taken a hard hit.

Global central banks are also working to diversify the reserves they hold to facilitate international trade and the financial position of their countries. The US dollar remains the preeminent global currency, but central banks are increasingly holding more gold. It’s a trend that analysts say has supported higher gold prices this year, although retail buyers have also flocked to the metal.

“Central banks plan to gradually diversify rather than dispose of the dollar on a large scale,” the official Forum of Monetary and Financial Institutions wrote this year after conducting a survey of central bankers, pointing to gold as a popular alternative.

In fact, diversification away from the US dollar does not necessarily mean a widespread selling of US bonds, Gennady Goldberg, head of US interest rate strategy at TD Securities, wrote in a note to clients on Thursday. Foreign governments and central banks appear to be buying fewer Treasuries, but demand continues among foreign private investors, Treasury data showed.

Goldberg wrote that flows from bond funds into the United States have already exceeded those into Canada and Europe in recent months. He sees next year as a continuation of 2025, as US Treasury bonds will outperform bonds in other major economies and push down borrowing costs for US households.

The de-dollarization narrative “continues to play out under the hood,” he wrote, and may resurface when Trump announces the replacement of Fed Chairman Jerome Powell next year.

“The important point to keep in mind is that as long as diversification occurs amid a rising global savings pool, investors will be able to diversify their holdings without dumping Treasuries,” Goldberg wrote.