Prominent economist Mohamed El-Erian has drawn attention to a pivotal transformation in the global financial landscape, as China's involvement in the U.S. Treasury market has reached its lowest point in 15 years, now holding only 7% of the total share. This significant reduction in holdings sparks questions regarding the future demand for American debt and underscores China's strategic move away from its historical role as a primary financier of U.S. deficits. The shift is indicative of broader geopolitical currents and China's efforts to diversify its reserves.
El-Erian's observations, supported by MacroMicro data, reveal a dramatic decrease in China's U.S. Treasury holdings from a high of 28% to an approximate total of $682.6 billion, marking the lowest level since 2008. This decline is particularly notable given the continuous issuance of new securities by the U.S. government. The implications of this trend are substantial, potentially leading to increased borrowing costs for the U.S. if alternative buyers do not emerge to absorb the supply of new debt. The global financial system faces a delicate balancing act as traditional "anchors" like China alter their investment strategies.
The current movement by China to lessen its dependency on the U.S. dollar is unfolding amidst heightened international tensions. Beijing has reportedly advised its banking institutions to limit their exposure to Treasury securities, instead favoring investments in gold and other tangible assets. This strategic pivot is evidenced by China's gold reserves, which have consistently grown for 15 months, now standing at a record 2,308 tonnes. This de-risking strategy is widely perceived as a direct response to concerns over the potential weaponization of the dollar, particularly after the freezing of Russian assets in 2022.
Examining the changes in 10-year Treasury yields, data from the Federal Reserve Bank of St. Louis indicates varied movements over different periods leading up to February 12, 2026. The current yield is at 4.09%. Over a five-year span, yields have more than tripled from 1.20%, reflecting a rebound from the low rates during the pandemic. The ten-year period also shows substantial growth of 135%, signifying a long-term recovery. However, the fifteen-year change reveals a more modest increase of 12.36%, as the 2011 yield of 3.64% was already relatively close to present levels.
The core concern raised by El-Erian pertains to identifying new buyers for the substantial volume of U.S. debt as China, a long-standing major investor, reduces its stake. While demand from nations such as Japan and the UK remains stable, the diminishing purchasing power from China could exert upward pressure on U.S. borrowing costs. Economist Peter Schiff suggests that the Federal Reserve might step in to purchase these bonds, a move that could lead to inflationary pressures for consumers. This scenario highlights the interconnectedness of global economies and the potential for a ripple effect across financial markets.
As China continues its systematic reduction of U.S. Treasury holdings, the shift underscores a new era in global economic relations. This strategic repositioning by a major global player not only reconfigures the landscape of international finance but also presents a critical challenge for the U.S. in maintaining favorable borrowing conditions. The implications extend beyond financial markets, touching upon geopolitical stability and the future trajectory of global economic power.