America’s Most Loyal Treasury Buyers Are Pulling Back: Net Purchases by Pro-U.S. Countries Plunge 60%; Japan Nearly Stops Buying, Taiwan Turns Net Seller
America’s allies, long viewed as the most reliable buyers of U.S. Treasuries, are now clearly pulling back. According to data, in the first eight months of 2026, countries and territories most aligned with the United States bought a net $174.3 billion of U.S. Treasuries (excluding Treasury bills), a drop of more than 60% from a year earlier and the lowest level for the period since 2021 — a sign that Washington can no longer take allied demand for granted as it funds its own deficits.
The cooling is especially pronounced in Asia. Japan, the largest overseas holder of U.S. Treasuries, bought a net $389 million in the first eight months of this year, a 99% plunge from a year earlier that amounts to an almost complete halt in purchases. South Korea was a net seller of $23.8 billion over the same period, its largest net outflow for the period since records began in 1977. Taiwan also shifted from buyer to net seller.
The shift in capital flows is hard to explain with any single reason. Because the data cover both official and private investors, the figures cannot distinguish between government and private positions, and governments rarely disclose whether they plan to cut their Treasury allocations. Market participants cite a combination of possible factors: weaker local currencies, rising domestic bond yields, growing demand for equity investment and unease about the direction of U.S. policy.
Brad Setser, a senior fellow at the Council on Foreign Relations and a former U.S. Treasury Department official, noted that South Korean investors favor equities, while Taiwanese funds have shifted toward stocks and deposits. “So some of America’s friends with large surpluses are no longer major net buyers of Treasuries,” he said. He sees this as part of a broader “de-reserving” phenomenon, in which overseas assets are increasingly held through large institutions such as pension funds and state-owned banks rather than concentrated in central bank foreign exchange reserves. That does not mean countries are broadly “de-dollarizing,” but it could erode the relatively stable official demand for Treasuries seen in the past.
Masahiko Loo, a senior fixed-income strategist at State Street Investment Management, put it this way: “The Treasury market hasn’t lost foreign buyers; it has lost the investors who would naturally buy Treasuries.” He argued that as U.S. policy becomes harder to predict, investors find it more difficult to justify significantly increasing long-term Treasury allocations, or to keep letting capital flow automatically back into Treasuries.
Looking at rate differentials, Japanese domestic yields have risen to multi-decade highs, narrowing the relative appeal of investing in overseas bonds. Andre de Silva, a strategist at Markets Live, said persistently high dollar funding rates continue to erode returns on Treasuries, while rising Japanese domestic yields have made Japanese government bonds relatively more attractive. Oliver Levingston, a G10 FX and rates strategist at BofA Securities, also noted that Japan is a U.S. ally but that signs of a gradual unwinding of carry trades are emerging.
The analysis is an updated version of research first published in February. Methodologically, it draws on U.S. State Department data to gauge how often each country’s votes on key United Nations resolutions align with the United States, classifying countries into three groups — most pro-U.S., least pro-U.S. and neutral — across 57 countries and territories, and calculating net purchases of Treasuries with original maturities of more than one year.
Notably, countries least aligned with the United States were net buyers of $17.1 billion in the first eight months of this year, reversing four consecutive years of net selling over the same period, though the amount was only about one-tenth of the net purchases by the most pro-U.S. countries. China remains one of the major net sellers of Treasuries, while the United Kingdom, Hong Kong and India were significant buyers.
The data have limitations. The U.S. Treasury Department may attribute holdings to the country where the securities custodian or intermediary is located rather than to the nationality of the ultimate owner, so positions booked in financial centers such as the United Kingdom and Belgium may partly belong to investors from other countries.
U.S. government debt has surpassed $40 trillion, and financing relies heavily on continued buying by investors. As of August, overseas investors still held about $7.85 trillion of U.S. Treasuries, close to a record high, but their share of the overall market has fallen from a peak of 52% in 2012 to less than one-third. At the same time, private investors such as hedge funds, banks and mutual funds have taken on more of the market, with their share of U.S. federal government debt rising to about 70%, near the highest since 1990.
Private buyers are more sensitive to price, which also makes the market react more sharply to yields and policy signals. The yield on the 10-year U.S. Treasury note has topped 5% this year and recently held near 5.01%.
Robert Tipp, head of global bonds at PGIM, argued that looking across the alternatives, there are not many assets that can genuinely absorb allocations, and that outflows from some countries continuing to rebalance portfolios and reduce Treasury holdings have been absorbed by other buyers.
Source: financebiggo