The United States is increasingly reliant on its closest allies to finance its growing debt burden, revealing a vulnerability in the $30 trillion US Treasury market. An analysis of US Treasury data shows that in 2025, nations aligned with the US recorded net purchases of $463.9 billion in US Treasuries, the largest annual net buying volume since at least 2016. In stark contrast, countries least aligned with the US reduced their holdings by $125.24 billion last year, the highest level in six years.

Between 2016 and 2025, non-allied and neutral nations collectively sold off $673 billion in US debt, while allies increased their Treasury reserves in all but one year. Although most market participants believe US Treasuries will remain the global benchmark safe-haven asset, the trend of divestment is accelerating as President Donald Trump's unpredictable decisions unsettle investors.

While defining "alignment" involves subjectivity, this analysis categorizes countries into "highly aligned," "low alignment," and "neutral" based on their voting behavior in the United Nations matching that of the US. This assumption posits that countries with similar voting stances have closer relationships, a method commonly used in academia to distinguish allies from rivals.

For instance, long-standing military ally Australia is classified as "highly aligned," China as "low alignment," and neighboring Mexico as "neutral." The analysis relies on voting data from key UN resolutions provided by the US Department of State.

Shifts in the concentration of foreign investor holdings reveal the direction of power dynamics and indicate that Trump, even while attempting to reshape the global order, cannot afford to alienate allies. His recent attempt to gain control over Greenland sparked market speculation that Europe might "weaponize" its Treasury holdings by selling aggressively in retaliation.

"For a net debtor nation, especially one reliant on foreign capital to fund large deficits, antagonizing both allies and rivals is unwise," said Kathy Jones, Chief Fixed Income Strategist at Charles Schwab. "This raises financing costs and triggers market volatility. Given sanctions, tariffs, widening deficits, and the overall impact of 'America First' policies, it's unsurprising some nations are reducing dollar assets."

Data from the US Treasury shows the UK, Canada, and Japan were the largest buyers of Treasuries last year, although UK figures may be distorted by its role as a financial center. China, India, and Brazil were the biggest sellers, followed by Belgium, whose holdings are often thought to include some Chinese accounts.

Even excluding the UK and Belgium, US allies remained net buyers of Treasuries, with purchases exceeding 2024 levels.

The trend away from dollar assets is becoming more pronounced as Trump criticizes Federal Reserve independence, trade tensions escalate, and political polarization intensifies. The US President has long accused other countries of deliberately devaluing their currencies to boost exports, suggesting the dollar is unfairly overvalued.

Foreign investors hold approximately one-third of outstanding US Treasuries. The risk is that if more nations grow uneasy with Washington's policies, they may follow the lead of China, India, and Brazil and further reduce their dollar holdings.

**Bloomberg Strategist View** "As long as US Treasury yields remain relatively attractive—which is likely given that investment and productivity gains are pushing up neutral rates—capital will continue flowing into Treasuries." — Skylar Montgomery Koning, Macro Strategist

Earlier this month, reports indicated that Chinese regulators, concerned about market volatility, advised financial institutions to limit their Treasury holdings. This followed news that Europe's largest pension fund significantly reduced its Treasury exposure for most of last year.

"The risk isn't China selling; that's already priced in," said Maxence Viso, Research Director at investment firm Arkevium. "The risk is allies stop buying, or begin collectively hedging their Treasury exposure."

While there is no sign this is imminent (and demand is influenced by many factors), a sell-off could push yields higher, pressuring the US government's financing needs.

The market reaction following Trump's announcement of widespread global tariffs in April 2025 illustrates the potential chaos from a sudden surge in yields: implied Treasury volatility spiked to its highest since late 2023, currency volatility hit a two-year high, and the stock market VIX index reached an eight-month peak.

However, some argue market concerns are overstated. Although foreign holdings of non-short-term Treasuries hit a record high last November, they account for only about one-third of outstanding debt, down from a peak of 52% in 2012. This means both allies and rivals collectively have less influence over the Treasury market than a decade ago.

US Treasuries remain the global benchmark safe-haven asset, and their relatively high yields—the 10-year yield is around 4.05%—enhance their appeal. Over the past 12 months, Treasuries have returned over 5%, outperforming most comparable bonds in developed markets.

"Globally, there are few alternatives to the US market," said Ishikane Kiyoshi, Chief Fund Manager at Mitsubishi UFJ Asset Management, one of Japan's largest funds. "Even if investors are dissatisfied with the US, it's difficult to move capital elsewhere."

US Treasury Secretary Scott Bessent has repeatedly dismissed "America selling" narratives, arguing that the current administration's economic policies reinforce the US as the preferred global destination for capital.

"We are rebuilding industrial capacity, securing technological leadership, expanding economic opportunity, and enhancing resilience," Bessent stated in a recent Dallas speech. "We are fundamentally reshaping the framework for US engagement in the global economy."

Some also point out that political rivals like China may not be fully exiting Treasuries—even though data shows China's holdings have halved since 2013.

"In reality, China is increasing, not decreasing, its dollar assets," said Brad Setser, Senior Fellow at the Council on Foreign Relations, suggesting Beijing is "either buying Treasuries in ways not directly captured by US data, or financing other entities that buy Treasuries or US corporate bonds."

Beyond China, some market participants believe the global trend of reducing Treasury exposure will continue, even as some capital flows into other US assets. In 2025, foreign net purchases of US stocks doubled to $717 billion, while buying of corporate and other bonds hit at least a 2016 high.

Foreign official holdings of Treasuries have fallen about 12% from their 2021 peak to $3.5 trillion. In contrast, global gold reserves have reached a record high, according to data from the US Treasury and the International Monetary Fund.

"If this trend continues, I believe it will create upward pressure on long-term Treasury yields," wrote Kristina Hooper, Chief Market Strategist at the Man Group, analyzing the risks of foreign investor divestment.