Geopolitical tensions and fluctuations in U.S. bond markets have reportedly been heightening risk concerns
China has called on its banks to reduce their exposure to U.S. government debt, citing market volatility and increasing financial and geopolitical risks, according to Bloomberg, which cited individuals with knowledge of the situation.
Over the past 10 years, China has gradually reduced its U.S. Treasury holdings, a change that has resulted in Japan and the U.K. surpassing it as the largest foreign holders of American debt. After reaching a peak of approximately $1.3 trillion in 2013, its holdings have dropped by roughly half to around $650–700 billion, hitting levels not observed since 2008.
Beijing has recommended that China’s major financial institutions restrict new purchases of U.S. government bonds and cut back on positions with high exposure, according to sources who spoke with the outlet on Monday. The guidance is said not to apply to Beijing’s official state holdings.
The report, which referenced China’s State Administration of Foreign Exchange, stated that as of September, Chinese banks held approximately $298 billion in dollar-denominated bonds. It remains unclear how much of that total was made up of U.S. Treasuries.
The guidance, which is said to aim at diversifying market risk, was issued ahead of last week’s phone call between Chinese President Xi Jinping and U.S. President Donald Trump. In October, the two leaders agreed to a one-year trade truce, under which tariffs and export controls on each other’s goods would be reduced.
Beijing’s recent action occurs against a backdrop of broader worries about fluctuations in U.S. bond yields and significant dependence on dollar-denominated assets. Germany’s financial regulator, BaFin, has recently cautioned that the U.S. dollar’s status as the world’s reserve currency could encounter challenges in 2026 due to geopolitical shocks and funding pressures.
This warning followed the Bloomberg Dollar Spot Index recording its steepest decline since last April, which occurred after Trump announced wide-ranging global tariffs. Last month, Trump downplayed concerns about the currency’s weakness, stating it is “doing great” and should be permitted to “seek its own level.”
On Monday, U.S. Treasury prices continued to fall and yields rose slightly, while the U.S. dollar weakened against major currencies. U.S. Treasury Secretary Scott Bessent stated last week that the Treasuries market had achieved its best performance since 2020 and experienced record foreign demand at auctions.