The external demand for U.S. Treasuries shows "cracks," as global central banks have sold off $4.8 billion in U.S. Treasuries for two consecutive months

Against the backdrop of a continuously weakening global dollar, foreign central banks, which should be buying heavily, are quietly selling.

On June 16, Bank of America’s latest report showed that global central banks have sold $48 billion in U.S. Treasuries since the end of March, while foreign investors' holdings in the Federal Reserve's reverse repurchase facility have also decreased by about $15 billion. Bank of America analysts pointed out that this outflow of funds is "unusual":

This flow of funds likely reflects that official sectors are diversifying their dollar holdings, and we remain concerned about the outlook for foreign demand.

Typically, when the dollar depreciates, foreign central banks tend to increase their holdings of U.S. Treasuries. However, according to the Bloomberg Dollar Spot Index, the dollar has fallen about 8% in 2025 and is nearing a three-year low, yet the behavior of overseas buyers is contrary to historical patterns.

Eroding Foundation: Who is Taking Over?

The demand from overseas investors has long been one of the important foundations supporting the massive U.S. Treasury market. However, this foundation seems to be loosening.

Data from the New York Fed shows that as of the week ending June 11, the average holdings of U.S. Treasuries by global central banks and other official institutions decreased by $17 billion, continuing the selling trend since the end of March, with a cumulative reduction of $48 billion.

In contrast, nearly all of the demand for U.S. Treasuries in the first quarter of this year came from broker-dealers and foreign investors.

Bank of America analyst Meghan Swiber described this as a "concerning picture" in the report. She explained that the purchases by broker-dealers are often just to fill the gap between bond supply and private investor demand, rather than true end-user demand. This means that once foreign demand continues to weaken, the stability of the U.S. Treasury market will face severe challenges.

In recent months, Trump's trade and fiscal policies have continued to stir the financial markets, intensifying speculation that overseas buyers will avoid U.S. assets—what is referred to as the "Sell America" trade. The weakness of the dollar is partly due to market concerns that the tariffs imposed will harm the U.S. economic outlook.

Looking ahead, the situation may be even less optimistic. Bank of America warns:

Given that an increasing number of global investors are seeking to reduce U.S. assets or increase their hedging ratios, the future trajectory of foreign demand is concerning.

This pessimistic outlook is not unfounded. Strategists also pointed out that there have been signs of "sustained weakening" in foreign investor participation in recent 2-year and 20-year Treasury auctions