Foreign central banks dumping U.S. treasuries

There is a lot of talk about whether the Federal Reserve should raise interest rates, but in fact, the market is hiking rates with or without central bank cooperation.

Treasury yields have crept relentlessly higher over the last several months, signaling significant stress in the bond market.

The 10-year Treasury yield was over 4.6 percent last Thursday morning (May 21), and the 30-year was north of 5 percent. Meanwhile, rates on the lower end of the curve are also spiking, with the 2-year Treasury note above 4 percent.

At an auction two weeks ago, the 30-year Treasury sold at a yield of 5.046 percent. While the 30-year has traded above 5 percent on the secondary market a handful of times, it was the first time since 2007 that it sold at auction with a yield that high.

Analyst Brien Lundin noted that the Fed, along with other central banks around the world, finds itself in a “debt trap.”

“It’s essentially the same story I’ve been preaching for the last decade... but it all appears to be coming to a head right now. In short, the inflationary implications of higher oil prices are driving traders away from risk assets (stocks, metals, bonds, etc.) in fear of a hawkish Fed monetary policy in response.”

But there is an even more fundamental dynamic tipping the Treasury market – basic supply and demand. There is a lot of debt out there, and the federal government is creating more every day. Meanwhile, the world is getting wary of holding all that debt.

Foreign Treasury holdings dropped from $9.49 trillion in February to $9.25 trillion, a 2.5 percent decline.

Some of the biggest foreign holders of U.S. debt are shedding Treasuries at an accelerating pace.

Japan ranks as the largest foreign creditor. Its Treasury holdings fell by $47 billion to $1.191 trillion.

This is partly a function of the U.S.-Iran war oil shock. Many countries are selling dollar-denominated assets for cash to pay for oil and to support their own currencies.

HSBC chief Asia economist Frederic Neumann told CNBC the selloff doesn’t come as a shock.

“Given increased financial volatility since the start of the war in the Gulf, and resultant pressure on exchange rates, especially in Asia, it is not a surprise that U.S. Treasury holdings by central banks have fallen. Exchange market intervention to support local currencies will have led some central banks to sell a share of their U.S. Treasury holdings.”

However, softness in the Treasury market predates the conflict. It has been struggling for months because a lot of countries simply don’t want any more exposure to U.S. fiscal malfeasance. The national debt has surged to over $39 trillion. Meanwhile, the federal government has shown zero interest in reining in spending. On top of that, it is blowing through an additional $1 billion per day to fight the war.

Would you want to lend your drunk uncle, who has maxed out all his credit cards, more money?

So, it’s not surprising that many countries are anxious to minimize their exposure to the dollar. We see this reflected in accelerating de-dollarization and the fact that gold recently climbed above Treasuries as the world’s biggest foreign reserve asset. When times get tough, you don’t want rapidly devaluing dollars backed by a spend-happy U.S. government. You want real money – gold – backed by nobody.

A sagging Treasury market is bad news for a U.S. government already struggling under the weight of ballooning interest payments.

April interest payments pushed total interest expense to $734.2 billion through the first seven months of fiscal 2026. That was up 7.3 percent compared to the same period in fiscal ’25.

Interest on the national debt cost $1.2 trillion in fiscal 2025. That was up 7.3 percent over 2024.

WolfStreet noted, “There are rising concerns in the bond market about the ballooning U.S. debt, and about the flood of new supply of Treasury securities that the government will have to sell in order to fund the out-of-whack deficits. Treasury buyers and holders are spread far and wide, but higher yields may be necessary to reel in the mass of new buyers needed.”

A year ago, analyst Artis Shepherd called the situation in the Treasury market “red lights blinking.”

“The bond market is sending a message to the U.S. government that its spending is out of control and the reserve currency ‘privilege’ it has abused for the last 80 years is running out.”

There is some speculation that the Federal Reserve will have to raise rates to combat price inflation. However, the central bank is already struggling to control the yield curve (especially the long end). It has already restarted quantitative easing (although it will never use that term) to put its big fat thumb on the Treasury market.

While QE can ease the government’s borrowing problem, it will increase inflation. Remember, when the Fed runs QE operations, it buys bonds with money created out of thin air and injects it into the financial system. This is, by definition, inflation.

As Lundin noted, "The Fed will need to raise rates to corral inflation... but it simply can’t because of the debt trap. Investors increasingly recognize this, and are demanding higher returns on Treasurys to compensate for the risk."

The Fed has a choice. It can fight the inflation dragon, or it can surrender to inflation and prop up the bond market. It can't do both. History tells us the Fed will pick inflation. You should prepare accordingly.

“gold”

Gold is not risk free.

Space X could find an asteroid with 10 times the amount in human hands now.

Kill OPEC altogether. Develop rare earth tech and patents. End the EV dependency or EVs altogether.

Export the oil at its high price to offset import costs, maintain tariffs, maintain dollar low, reduce rates.

I do not see the problem of them selling treasuries on the cheap to buy expensive oil from us. Tax revenues from this profit should help pay the debt to boot.

AI Overview

The U.S. dollar accounts for approximately 56.8% of allocated global foreign exchange reserves. It remains the world's primary reserve currency by a wide margin, though its share has declined from around 70% in the early 2000s as central banks have gradually diversified their portfolios.

Culturally it is relatively risk free. Development of India has resulted in a surge of gold buying. Gold in space would stay in space for space development

Right now the need is to persuade TX and ND oilers to export their oil high and buy treasuries on the cheap from Japan and China. Reduce rates would then be plausible and beneficial

These actions are more figurative in the big picture. It’s like when the libs started selling their Teslas. That didn’t really hurt Tesla, then.. But it put Tesla in a very precarious position going forward, as it indicated those buyers were likely lost, forever. Will the U.S. be able to sell treasuries in the future, without rates having to go up, is the question. Baring some worldwide collapse that leaves big money no other real option, it appears it is poised to begin looking elsewhere.

I am all for supporting and compensating the royally and illegally screwed J6ers. However...

There’s always a reason to spend:
Wifey wants that new top-and-bottom refrigerator...
Dad is eyeing that slick new set of golf clubs...
Kids say they need that new iPhone...
Daughter just has to have new outfits for Cozumel...
Dad Jr. intends to stay two more years for grad school...

That J6/victim fund? The President evidently thinks another almost two $Billion piled on top of the national debt is justified...

Michael Maharrey serves as the national communications director for the Tenth Amendment Center and the managing editor of the SchiffGold blog. He hosts his own podcast, Thoughts from Maharrey Head, as well as the Friday Gold Wrap podcast and the It’s Your Dime interview series for SchiffGold.

Ah, that explains the spin. Is Mike Maharrey selling freeze-dried food, too?

Here’s some actual data - https://tradingeconomics.com/bonds

https://tradingeconomics.com/united-states/foreign-treasury-holdings

1. This decline in the foreign holdings of Treasuries is a blip. And it happens - look at Dec 24 and Jan 25.

2. On a risk-adjusted basis Treasuries are awesome. For basically zero default risk the only competition is the UK and New Zealand.

Wake me when a real problem arises, or when someone not pushing gold etc. cries wolf.

Which is exactly why in July the US Treasury is announcing Gold backed Treasuries…according to Judy Shelton’s many interviews. The move to Stablecoins seems to have failed, fact is the world no longer trusts the US since senile Joe weapon used the USD.

Confiscating a sovereign nation’s assets was just plain stupidity….shot ourselves in the foot, and can’t stop the bleeding….adding to that Sanctions if you don’t agree with US policy is Suicidal.

Trump had better get busy on the US Gold reserve audit or no one will buy those “ Gold backed bonds”, ever.

None of what you've said here addresses the giant elephant in the room that is the basis of this article.

The U.S. is $39 trillion in debt, and is spending $1.2 trillion in interest payments on it at current rates. Meanwhile, the Trump administration and its financial wizards were out there celebrating a 2026Q1 GDP growth figure of 2.0%, which is an annual equivalent of about $650 billion GDP growth.

This math is beyond retarded. To put this in layman's terms, this is like doing a major home improvement project that costs $120,000 with the expectation that it will get you an additional $65,000 on the sale of your home when it's finished ...

... and then doing it again NEXT YEAR with the next home you buy.

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