Did China sell its US Treasuries — or just move them to Canada?

The conventional wisdom that China has been aggressively selling US Treasuries to accelerate its shift away from the dollar is facing fresh scrutiny. While China's official holdings of US government debt have fallen by roughly $600 billion over the past decade, Canada's have quadrupled in just five years — and Wall Street is asking whether Beijing has been quietly parking its Treasuries through Canadian financial institutions rather than selling them at all.

According to Bloomberg, China's US Treasury holdings have declined consistently since 2016 and now stand at $618 billion. Compared with the previous peak, that represents a drop of roughly $600 billion. China's holdings of US government-backed mortgage securities have also fallen by about 50 percent since early 2024.

Canada, by contrast, has seen its US Treasury holdings quadruple over the past five years. The combined increase in its holdings of US Treasuries and government agency mortgage-backed securities amounts to roughly $600 billion — a striking figure given that Canada has been locked in a tariffs dispute with the United States and has even seen consumer boycotts of American products.

On Wall Street, analysts are questioning whether the two countries' diverging trajectories are mere coincidence. When Vitaliy Liberman, a bond specialist at asset manager DoubleLine, asked market participants why Canada's US Treasury holdings had surged so sharply, a significant number pointed to China.

Some experts replied that "it's not Canada — it's another Canada," Bloomberg reported. The implication is that a substantial portion of the Treasuries recorded under Canada's name may in fact represent Chinese money.

The crux of the issue is that US Treasury holding statistics do not necessarily reflect the nationality of the ultimate owner. If China entrusts its Treasuries to foreign financial institutions — such as those in Canada — without actually selling them, the US Treasury Department's data would attribute those holdings to the country where the custodian is located, not to China.

In that scenario, China's official Treasury holdings would appear to shrink even as its actual exposure to dollar assets remains largely unchanged. Beijing would look as though it were reducing its dependence on US financial assets while in practice continuing to hold dollars.

"The notable thing is that China has become much better at hiding dollars than at de-dollarization," said Brad Setser, a senior fellow at the Council on Foreign Relations. "China is not moving away from the dollar or dollar-denominated bonds."

There are also economic reasons why China would find it difficult to offload US Treasuries on a large scale. As the world's largest exporter, China runs a trade surplus of more than $1 trillion a year, and few investment markets are large enough to absorb that volume of dollars the way the US Treasury market can.

A large-scale sell-off of Treasuries would push bond prices down, eroding the value of China's remaining holdings. Converting dollars into yuan on that scale would also push up the yuan's value, weakening the price competitiveness of Chinese exports.

"A large-scale sale of US Treasuries would crystallize mark-to-market losses on remaining holdings, push up the yuan, and leave the question of where to invest the dollars," said Alicia Garcia-Herrero, chief Asia-Pacific economist at Natixis.

Analysts are paying particular attention to Canada's holdings of US mortgage-backed securities. Canada's holdings of US government agency mortgage bonds jumped from $21 billion in mid-2021 to $162 billion today — roughly an eightfold increase. That market is smaller than the broader US Treasury market, attracts a limited number of major foreign investors, and has traditionally been dominated by Japan, Taiwan and China.

However, no direct evidence has emerged confirming that the rise in Canada's holdings is driven by Chinese money. China's State Administration of Foreign Exchange and the US Treasury Department did not respond to Bloomberg's requests for comment, and Canada's Office of the Superintendent of Financial Institutions declined to discuss transactions involving individual financial institution clients.

"I'm uncomfortable attributing all of this to China," said Alex Etra, a former economist at the Federal Reserve Bank of New York. "It's like everyone is touching a different part of the elephant — no one has the full picture."

The question of how much US debt China actually holds has taken on added significance as long-term Treasury yields have climbed to their highest levels in 25 years, driven by inflation from wars in the Middle East and the United States' massive fiscal deficit. Whether China is genuinely reducing its dollar assets or simply moving them to different custodians could reshape how markets assess foreign demand for US Treasuries.