Strong demand for U.S. Treasury bonds pushed holdings to a new record high, reaching $9.49 trillion, marking the second consecutive month of increase, despite market volatility stemming from the Federal Reserve's interest rate direction. Japan and the UK remain the largest creditors, while China continues to reduce its holdings in the dollar amid geopolitical tensions. Net capital inflows reversed course, turning positive at $1.84 billion, defying the decline in 10-year Treasury yields.
On April 16, 2569, the U.S. Treasury Department reported that foreign investors' holdings of U.S. government bonds in February reached a record high of $9.49 trillion, a 2.1% increase compared to January's holdings of $9.29 trillion, and a 6.6% expansion compared to the same period the previous year.
This growth reflects the fact that dollar-denominated assets remain the primary target for global investors, even as markets closely assess the direction of the Federal Reserve's monetary policy. Yields in the US remain more attractive compared to other developed countries.
Japan and the UK are the main drivers, going against the global interest rate trend.
Japan remains the largest holder of U.S. government bonds outside of the United States, increasing its holdings to $1.239 trillion in February, the highest level in two years since February 2022. This marks the first 13 months of increases in Japan's holdings since the last 14 months.
"The continued demand for investment from Japanese financial institutions stems from their search for higher returns abroad, as domestic interest rates remain low, while the Bank of Japan (BOJ) continues to gradually reduce its ultra-loose monetary policy."
Meanwhile, the United Kingdom, as the second-largest holder and a global hub for hedge funds, saw its holdings increase by 2% to $8.973 billion. Analysts view this inflow of capital into London as a key indicator of the direction of hedge funds.
China continues to reduce its holdings amid heightened tensions.
Conversely, China, the third-largest holder, has shown an opposite trend, reducing its holdings to $6.933 billion, a decrease of over 9% since January 2025.
"The decline in China's bond holdings reflects a long-term trend towards diversifying away from U.S. assets amid geopolitical tensions and efforts to invest reserves in other currencies and asset classes."
The increased demand in February came amid a correction in the 10-year U.S. Treasury benchmark yield, which fell from 4.277% to 3.962%.
The overall capital flow reflects recovering confidence, with net capital inflows totaling $1.845 billion, a turnaround from January's net outflow of $2.5 billion. However, financial markets still need to be vigilant against volatility from external factors, particularly the impact on confidence from the escalating conflict between the US, Israel, and Iran, which began in late February and could affect asset allocation in the coming period.
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