The United States is becoming ever more dependent on its closest allies to fund its

swollen debt burden

, exposing a vulnerability in the

US$30 trillion Treasuries market

.

Countries that are aligned with Washington bought US$463.9 billion of Treasuries in 2025, the biggest annual net purchase since at least 2016, according to Bloomberg’s analysis of

U.S. Treasury

data. By contrast, the figures showed that countries least united with the U.S. offloaded US$125.24 billion of American debt last year, the most in six years.

Non-allies and neutral nations sold US$673 billion of Treasuries between 2016 and 2025, while allies added to their reserves in all but one of those years. The pivot away from

U.S. government bonds

has gained momentum as President

Donald Trump’s

unpredictable decision-making rattles investors, even though most market participants say U.S. debt is likely to remain the world’s benchmark safe asset.

While alignment can be subjective, in this analysis countries were classified as most-, least- and neutrally-aligned by looking at their voting behaviour at the United Nations and seeing whether or not it tallied with the U.S. The assumption is that countries that vote the same way are more closely aligned and it’s an approach commonly used in academia to determine allies and adversaries.

For example, longtime military ally Australia was classified as most-aligned, China as least, with America’s neighbour Mexico falling into the neutral bucket. The votes examined were those on key UN resolutions, based on data from the U.S. Department of State.

The concentration of holdings in the hands of foreign investors shows where the balance of power lies, and suggests that Trump can ill afford to alienate his allies even as he seeks to reshape the world order. His push to gain control of Greenland last month sparked a flurry of speculation Europe might push back by “weaponizing” those holdings and dump them.

“Antagonizing friend and foe is not a great idea for a net debtor nation – especially one with high deficits that need to be funded with foreign capital,” said Kathy Jones, chief fixed-income strategist at Charles Schwab. “It can drive up the cost and create some instability. In light of the use of sanctions, tariffs, rising deficits and general ‘America first’ policies – it’s not surprising that some countries are

reducing dollar exposure

.”

The United Kingdom, Canada and Japan bought the most Treasuries last year, according to the data from the U.S. Treasury, although the U.K. figures may have been distorted by its role as a financial hub. China, India and Brazil sold the largest quantities of the notes, with Belgium — whose holdings are usually taken to include some Chinese accounts — ranking just behind them.

Even if the U.K. and Belgium are excluded, U.S. allies were still net buyers, with their purchases exceeding 2024 levels.

The shift away from dollar-denominated assets has gained traction amid Trump’s attack on the Federal Reserve’s independence, escalated trade wars and widening political polarization. But the U.S. president has also long accused other countries of seeking weaker exchange rates to boost exports, suggesting the U.S. currency was unfairly overvalued.

With ownership of roughly a third of all outstanding Treasuries resting in the hands of foreigners, the risk is that more countries may join the likes of China, India and Brazil in scaling back their dollar exposure if they’re unsettled by Washington’s policies.

What Bloomberg Strategists Say…

“As long as U.S. yields remain relatively attractive, which seems likely with investment and productivity boosting the neutral rate, capital should continue to flow into Treasuries”

— Skylar Montgomery Koning, Macro Strategist

Earlier this month, Chinese regulators were said to have advised financial institutions to rein in their holdings of U.S. Treasuries, citing concerns over market volatility. This came after Europe’s biggest pension fund spent much of last year dramatically trimming its exposure to the securities.

“The risk isn’t that China sells. That’s priced in,” said Maxence Visseau, director of research at investment firm Arkevium. “The risk is that allies stop buying or start hedging en masse.”

While there are no signs that this is imminent — and demand can be influenced by a range of factors — a flight from Treasuries would have the potential to drive up yields and exert pressure on Washington’s financing needs.

The price action in the aftermath of Trump’s sweeping global tariffs imposed in April 2025 provides a snapshot of the chaos that could ensue if U.S. yields suddenly surge: back then, a gauge of Treasuries’ implied volatility soared to its most extreme level since late 2023, currency fluctuations jumped to the highest in two years, and the VIX index of equity volatility reached an eight-month high.

Benchmark U.S. 10-year yields are now just above four per cent, down from a January high of 4.31 per cent. Those on 30-year Treasuries are at 4.66 per cent after almost touching five per cent last month.

But, some say that the concerns are overstated. While overseas investors’ holdings of Treasuries excluding bills hit a record high in November, they accounted for just a third of the outstanding amount, down from a peak of 52 per cent in 2012. That means the U.S.’ allies and rivals both have arguably less leverage in aggregate than over a decade ago.

Treasuries also remain the world’s benchmark safe asset, and the higher yields offered by the notes — around 4.05 per cent on 10-year debt — help burnish their appeal. The bonds delivered a return of over five per cent in the past 12 months to outperform most of their developed-market peers.

“There just aren’t large alternatives to the U.S. market,” said Kiyoshi Ishigane, executive chief fund manager at Mitsubishi UFJ Asset Management Co., one of Japan’s biggest funds. “Even if investors feel some frustration toward America, it’s not practical to shift capital somewhere else.”

Treasury Secretary Scott Bessent has regularly pushed back against the “sell America” rhetoric, arguing that the administration’s economic policies enhance the U.S.’ position as the top destination for global capital.

“We are restoring industrial capacity, reinforcing technological leadership, expanding economic opportunity, and strengthening resilience,” Bessent said in a recent speech in Dallas. “We are fundamentally resetting the framework in which the United States participates in the global economy.”

Others point out political rivals like China may not have fully retreated from U.S. bonds, even though data show that the Asian nation has halved its holdings of Treasuries since 2013.

“In reality, China is adding to its dollar exposure, not reducing it,” said Brad Setser, a senior fellow at the Council on Foreign Relations. Beijing is “either buying Treasuries in ways that don’t register in the U.S. data directly or financing other people who are either buying Treasuries or U.S. corporate credit.”

Beyond China, some market participants say the broader pivot away from U.S. assets is set to continue, even though there remain pockets of interest. Foreign net purchases of U.S. stocks more than doubled to US$717 billion in 2025, while buying of corporate securities and other bonds hit the highest level since at least 2016.

Foreign official holdings of Treasuries have declined about 12 per cent from their peak in 2021 to US$3.5 trillion. In contrast, gold reserves hit a record, according to data from the U.S. Treasury and International Monetary Fund.

“If this continues, I believe it will exert upward pressure on Treasury yields on the long end,” Kristina Hooper, chief market strategist at Man Group PLC, wrote on risks of foreign investors reducing exposure to Treasuries.

—With assistance from Kate Davidson, Christopher Anstey and Saleha Mohsin.

Bloomberg.com

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