If there has been one theme persisting over the last few months, it has to be the idea that this is the “End of American Exceptionalism.” Thanks to rising fiscal issues, structural changes, economic woes, and the potential for more tariffs, the “Sell America” trade has become a rallying cry for many portfolios. Perhaps none greater than foreign investors’ interest in U.S. Treasuries. As a major holder of U.S. debt, this sell-off could pose a significant issue for investors and the nation.
However, with data now available about the recent Treasury tantrum and Liberation Day declines, the headlines could be misleading. It could be more about diversifying rather than divestment.
For fixed-income investors, the implications of the lack of dumping activity could mean that U.S. treasuries and their safe-haven status remain intact. That’s a positive for portfolios.
Sell America?
Big stock swings are nothing new. Volatility is generally part of the investing picture when it comes to equities. However, when it comes to big swings in the bond market —especially safe-haven U.S. Treasuries —investors start to get worried. That was the case back in April.
The Trump Administration’s Liberation Day tariff announcement set the bond market on fire.
As traders reacted to the news, they became concerned about rising inflation, declining economic growth, and fiscal issues within the U.S., as well as the potential for tariffs to trigger a recession. As such, they sold treasury bonds. This managed to push the benchmark 10-year Treasury yield briefly above 4.5%, up from 3.99% just a week prior. At the same time, the ICE U.S. Dollar Index reached its lowest level in three years, falling against other safe-haven currencies, including the Japanese yen, Swiss franc, and Euro. 1
That’s a very big swing for the normally staid bond market. And since then, the yield on the 10-year has remained high and exhibited considerable volatility.
The significant drop in a normally sleepy market gave rise to a variety of theories. One of the biggest was that foreign investors- such as China, Japan, Norway, and sovereign wealth funds- were selling U.S. treasuries in mass. The issue is that some foreign investors and nations hold a lot of treasury bonds. For example, Japan has about $1.06 trillion, while China has about $760 billion. Even the U.K. holds approximately $722 billion in U.S. Treasury securities.
So, the concern that these investors had finally had enough and were selling their bonds was a significant concern for investors.
A Short-Term Blip
Indeed, the idea that foreign investors were selling U.S. bonds makes for good headlines. But data may tell a different story. According to State Street, the current situation may be just a blip on a long-term trend lower. To that end, investors may not have anything to worry about. At least on this front.
For starters, the idea that foreign investors are now suddenly selling U.S. bonds may be a myth. The truth is, this has been a longer-term trend lower since the days of the Dotcom Bust. Foreign ownership of treasuries reached its peak in the early 2000s. Overall, overseas ownership has declined by approximately 30% during this period. This chart from State Street shows the long-term decline. 1
Source: State Street
According to the asset manager, it has been private U.S. investors, including retail, commercial banks, pensions, and insurance funds, that have picked up the slack.
That’s part of the problem. Looking at the technicals, State Street indicates that the increase in volatility in the treasury market might be due to short-term selling by hedge funds and other leveraged players, rather than foreign investor selling. According to the asset manager, many hedge funds and “fast money” traders built up long positions in US Treasuries through swap spread “wideners.” As rates spiked, some of these positions were stopped. This created selling pressure, which in turn initiated a negative feedback loop. 2
This is something that investors have seen before in the U.S., specifically in September 2019 and March 2020. Investors in the U.K. Gilts and Sterling markets saw the same thing back in 2022 when former UK Prime Minister Liz Truss’s “mini budget” was released. Following these events, the treasury market has bounced back, providing support and reaffirming its status as a safe haven.
Moreover, structural changes to foreign holdings of treasury bonds are a long-term game. It would take years, potentially decades, for many of the major holders of U.S. bonds to sell them to ensure that sustained price crashes wouldn’t occur. Secondly, given the size of the U.S. bond market, there are not too many other places for investors of size to deploy their capital.
A Good Time To Buy
Following all the recent selling, an interesting opportunity may be brewing. Historically, high yields have been attractive for investors- both domestic and foreign. And we’re close to that point now.
While there are some long-term risks associated with treasuries, including fiscal woes, rising debt levels, and even inflation, the current high starting yields are desirable for investors. State Street also notes that the Federal Reserve and the U.S. Treasury Department have several tools at their disposal to keep the treasury market humming along if things get too bad.
For investors, this means that treasuries could be an interesting addition to their portfolios.
Intermediate Treasury Bond ETFs
These funds are selected based on exposure to intermediate Treasury bonds and the 10-year Treasury note. They are sorted by their YTD total return, which ranges from 0.5% to 3.9%. Their expense ratio ranges from 0.03% to 0.15% and they have AUM between $162M and $40B. They are currently yielding between 2.8% and 4.5%.
| Ticker | Name | AUM | YTD Total Ret (%) | Yield (%) | Exp Ratio | Security Type | Actively Managed? |
|---|---|---|---|---|---|---|---|
| IEF | iShares 7-10 Year Treasury Bond ETF | $33.1B | 3.9% | 3.8% | 0.15% | ETF | No |
| UTEN | US Treasury 10 Year Note ETF | $162M | 3.8% | 4.5% | 0.15% | ETF | No |
| SPTI | SPDR Portfolio Intermediate Term Treasury ETF | $7.5B | 3.7% | 3.9% | 0.03% | ETF | No |
| VGIT | Vanguard Intermediate-Term Treasury ETF | $39.6B | 3.6% | 4% | 0.03% | ETF | No |
| SCHR | Schwab Intermediate-Term U.S. Treasury ETF | $10.4B | 3.5% | 3.7% | 0.03% | ETF | No |
| IEI | iShares 3-7 Year Treasury Bond ETF | $15.8B | 3.4% | 3.5% | 0.15% | ETF | No |
| GOVT | iShares U.S. Treasury Bond ETF | $23.2B | 0.5% | 2.8% | 0.05% | ETF | No |
All in all, the recent volatility and blips in U.S. Treasury bonds may simply be a short-term reaction. The narrative that foreign investors are dumping treasuries is a myth. That means that the current high yields could be a buying opportunity for investors. While volatility may persist, income is plentiful, and historical data is on the investor’s side.
Bottom Line
The recent shocks to the U.S. Treasury market may come as a shock to investors. But they need not worry about foreign actors dumping their holdings. The data suggest that this narrative is false. That means that the safety of treasuries is assured at least for now.
1 State Street (June 2025). Are Foreign Investors Really “Dumping” US Treasury Bonds?
2 State Street (April 2025). Making Sense of the Current US Treasury Market
