De-dollarisation: Foreign Ownership in US Treasury Market on Decline
Foreign interest in the US bond market has continued to decline amidst uncertainties and the latest tariff threats to globalisation. The move reflects decisions of some countries to detach from US dollar dominance, and de-dollarised economies for various reasons.
This move was supported by positive developments outside the U.S. that boost the credibility of alternative currencies.
The U.S. dollar is the world’s primary reserve currency, and it is also the most widely used currency for trade and other international transactions, J.P Morgan said, adding that the greenback hegemony has come into question in recent times due to geopolitical and geostrategic shifts.
“A candidate reserve currency must be perceived as safe and stable and must provide a source of liquidity that is sufficient to meet growing global demand,” said Alexander Wise, who covers Long-Term Strategy at J.P. Morgan.
In a sign of de-dollarization in bond markets, the share of foreign ownership in the U.S. Treasury market has been declining over the last 15 years, JP Morgan said in its second half year report.
The firm stated that USD assets, principally liquid Treasuries, account for the majority of allocated FX reserves. The note revealed that demand for Treasuries has stagnated among foreign official institutions, as the growth of FX reserves has slowed and the USD’s share of reserves has dropped from its recent peak.
J.P Morgan said backdrop for foreign private demand has weakened — as yields have risen across DM government bond markets, Treasuries have become relatively less attractive.
“While foreign investors remain the largest constituent within the Treasury market, their share of ownership has fallen to 30% as of early 2025 — down from a peak of above 50% during the GFC.
“Although foreign demand has not kept pace with the growth of the Treasury market for more than a decade, we must consider what more aggressive action could mean. Japan is the largest foreign creditor and alone holds more than $1.1 trillion Treasuries, or nearly 4% of the market.
Accordingly, any significant foreign selling would be impactful, driving yields higher,” said Jay Barry, head of Global Rates Strategy at J.P. Morgan.
According to estimates by J.P. Morgan Research, each 1-percentage-point decline in foreign holdings relative to GDP or approximately $300 billion of Treasuries would result in yields rising by more than 33 basis points (bp).
“While this is not our base case, it nonetheless underscores the impact of foreign investment on risk-free rates,” Barry added.
JP Morgan also said that U.S.’s share in global exports and output has declined over the past three decades, while China’s has increased substantially.
The firm said nonetheless, the transactional dominance of the dollar is still evident in FX volumes, trade invoicing, cross-border liabilities denomination and foreign currency debt issuance.
In 2022, the greenback dominated 88% of traded FX volumes — close to record highs — while the Chinese yuan (CNY) made up just 7%, according to data from the Bank for International Settlements (BIS), JP Morgan stated.
It said there is little sign of USD erosion in trade invoicing. “The share of USD and EUR has held steady over the past two decades at around 40–50%.
“While the share of CNY is increasing in China’s cross-border transactions as it moves to conduct bilateral trade in its own currency terms, it is still low from a global standpoint,” Luis Oganes, head of Global Macro Research at J.P. Morgan observed.
The dollar has also stoutly maintained its superiority when it comes to cross-border liabilities, where its market share stands at 48%. And in foreign currency debt issuance, its share has remained constant since the global financial crisis, at around 70%. “The daylight from the euro, whose share is at 20%, is even greater on this front,” Oganes added. #De-dollarisation: Foreign Ownership in US Treasury Market on Decline#
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