Global central banks are selling off US Treasuries at a frantic pace, with $82 billion worth of US debt being divested in a single month. Middle Eastern oil-producing countries are also cashing in their US bonds for hard currency.

Release Time：2026-03-31

The war in Iran has led to a sharp increase in energy prices. Central banks around the world are selling US Treasury bonds at the fastest pace in over a decade to stabilize their domestic economies and currencies.

Data from the Federal Reserve shows that the scale of U.S. Treasury bonds held in custody by foreign official institutions at the New York Fed has dropped sharply by $82 billion to $2.7 trillion since February 25, hitting the lowest level since 2012. Meanwhile, the yields on two-year and ten-year U.S. Treasury bonds have risen by the most this month since 2024, with borrowing costs across the board on the rise.

Meghan Swiber, a US interest rate strategist at Bank of America, said, "Foreign official sectors are selling US Treasuries." Middle Eastern oil-exporting countries, which hold about $300 billion in US Treasuries, could be a source of this decline.

The shrinking of foreign exchange reserves and the selling of bonds have compounded the already pressured US bond market, and investors' concerns over the inflationary impact of the Middle East conflict have further intensified.

This round of selling spree also reflects a deeper trend - global reserve management institutions have been continuously diversifying their dollar asset allocation for many years, and the status of US Treasuries as the world's leading reserve asset is being eroded more and more obviously.

Oil-importing countries are the first to be hit, while oil-producing countries also join in the sell-off.

Middle Eastern oil-exporting countries hold about 300 billion US dollars of US Treasury bonds, accounting for approximately 3.5% of the total holdings of foreign investors. Bank of America strategists believe that the reduction in holdings by these countries may have contributed to the recent decline in holdings. Saudi Arabia is one of the countries with a relatively large holding of US Treasury bonds.

Meanwhile, as Iran blocked the Strait of Hormuz, global oil prices rose sharply, and oil-importing countries suffered the most direct impact. The passive shrinkage of foreign exchange reserves, coupled with the demand for intervention in the foreign exchange market, prompted many central banks to accelerate the liquidation of US Treasury bonds.

Brad Setser, a senior fellow at the Council on Foreign Relations in the United States, said that oil-importing countries such as Turkey, India and Thailand are likely to be the main participants in this round of selling, as these countries have to pay higher oil prices in US dollars.

Official data shows that since February 27, the day before Iran was attacked, the Central Bank of Turkey has sold $22 billion worth of foreign government bonds from its foreign exchange reserves. Setser believes that a considerable portion of these were US Treasuries.

Independent data from the central banks of Thailand and India also show that the foreign exchange reserves of both countries have declined since the outbreak of the war, but it is not yet clear whether the reduction is in US Treasury holdings or in US dollar deposits.

Setser said, "Many countries do not want their currencies to depreciate further because this would push up oil prices denominated in their own currencies, either meaning more fiscal subsidies or greater pain for residents. Therefore, countries generally decided to intervene in the foreign exchange market to limit the depreciation of their currencies and the rise in oil prices denominated in their own currencies."

The US bond market is under pressure, with yields posting the biggest monthly increase in more than a year.

At present, the US Treasury bond market is already under multiple pressures, and the concentrated selling by foreign official institutions has made the situation even more complicated.

The scale of the sell-off reflected in the Fed's data is particularly notable. Swiber pointed out that since the Fed last recorded a similar-sized sell-off in 2012, the size of the US Treasury market has approximately tripled, making the current sell-off proportionally more significant. The yields on two-year and ten-year US Treasuries have both risen by the most this month since 2024, leading to a comprehensive increase in borrowing costs for the government, businesses, and households.

Some investors believe that the strengthening of the US dollar itself will prompt central banks to rebalance their asset portfolios and sell US Treasuries to defend their own currencies, so there is a certain passive factor in the decline in holdings. However, there are also views that the current data more reflect the demand of various countries to actively use reserve funds during market turmoil.

Stephen Jones, chief investment officer of Aegon Asset Management, described this behavior as countries "raising war chest funds", saying, "They are drawing on emergency reserves."

Liquidity demand as the core driver

Thomas Simons, a money market economist at Jefferies, believes that the core driver of the recent surge in US Treasury yields lies in "the high uncertainty in the risk market and the strong demand for liquidity." He said that some market participants, after liquidating risky assets, had to sell high-quality assets to hold cash, and US Treasuries are such assets.

Simons added that "the market is extremely sensitive to the risk of foreign demand." He pointed out that in the past few years, the repeated wavering of confidence in the sustainability of foreign demand has triggered multiple sell-offs of US Treasuries. But for now, the reduced demand from foreign investors "is not helpful, but it is not the main driving force."

It is worth noting that US Treasuries have traditionally been regarded as a safe-haven asset during uncertain times. However, for most of this month, investors have continued to reduce their holdings - this unusual phenomenon highlights the strong suppression of traditional safe-haven logic by inflation expectations.

The trend of diversified allocation is accelerating, and the long-term reserve status of US Treasuries is under pressure.

This round of selling is not an isolated incident but a microcosm of a longer-term structural shift.

In recent years, the holdings of US Treasuries by foreign official institutions at the New York Fed have continued to decline, and global reserve management institutions are systematically reducing their exposure to dollar assets. As the proportion of official holdings drops, the importance of foreign private investors in the US Treasury market is rising, becoming a key force in supporting market liquidity.

Swiber said that the recent sell-off "confirms a broader narrative - that foreign reserve management institutions and official accounts are diversifying out of US Treasuries."

It is worth noting that analysts also caution that some of the US Treasury holdings may have been transferred to custodians other than the New York Fed rather than being directly sold in the market, which means the actual scale of the sell-off may be lower than the figures presented by the Fed. Nevertheless, the scale and trend reflected in the data have still drawn widespread attention from the market.

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