NextFin news, In October 2025, foreign official holdings of US Treasury securities held in custody by the Federal Reserve fell sharply to $2.78 trillion, marking the lowest level since 2012. This decline, reported by The Kobeissi Letter and documented on November 8, 2025, represents a reduction of $166 billion since March of this year and a steep drop of $356 billion compared to the peak in 2021. The foreign official holders include foreign governments, central banks, and international institutions typically regarded as stable long-term investors in US debt. The data track US Treasuries held in Fed custody accounts, a key transparency window into foreign official sector demand.
This downward trend in US Treasury holdings by foreign official entities is driven by a combination of factors. Principal among them is a weakening appetite for US dollar-denominated assets as global reserve managers diversify their portfolios amid geopolitical tensions, evolving monetary policies including those under the current US administration led by President Donald Trump, and currency risk considerations. The disposals signify a strategic reevaluation of risk versus return profiles amid persistent US inflationary pressures and rising Treasury yields, which have tempered the appeal of sovereign debt from the world's largest economy.
Concurrently, gold has emerged as a primary beneficiary of this rotation away from Treasuries, reflecting its enduring role as a safe-haven asset and store of value. Reserve managers appear to be increasing their allocations to gold as a diversification anchor during a period of uncertainty surrounding US fiscal policy and global economic shifts. This trend suggests a rebalancing of official reserves that weighs inflation hedging and geopolitical risk more heavily against yield considerations.
The implications of these trends are multifaceted. On the US Treasury market, diminished foreign official demand exerts upward pressure on yields, potentially increasing borrowing costs for the US government. This dynamic could influence the Federal Reserve's policy stance, complicating efforts to balance inflation control with economic growth objectives. Elevated yields may also invite greater participation from domestic investors, though concerns persist about the sustainability of demand amid broader portfolio reallocations.
From a macroeconomic and geopolitical perspective, the decline in foreign US Treasury holdings signals a subtle but meaningful shift in the global reserve currency landscape. While the US dollar remains dominant, the erosion of official sector demand underscores growing diversification into alternative reserves and currencies, including gold and potentially digital assets such as cryptocurrencies which some investors now view as digital gold. Central banks and sovereign wealth funds are likely recalibrating their foreign exchange reserves to mitigate concentration risk amid evolving US trade, fiscal, and monetary policies.
Looking ahead, monitoring the trajectory of US Treasury yields and gold price movements will be critical to understanding the evolving balance of global risk preferences. If foreign official disposals persist or accelerate, it may trigger further adjustments in yield curves and asset allocations internationally, with ripple effects across equity markets, commodity prices, and currency values.
Moreover, financial market participants should closely watch developments in Fed communications and US fiscal policy signaling under President Trump's administration, as these will shape investor confidence and reserve management strategies. Trading desks could anticipate increased volatility in Treasury futures and gold markets, offering opportunities to hedge or capitalize on shifting global demand dynamics.
In summary, the drop in foreign official US Treasury holdings to their lowest level in over a decade encapsulates a broader, data-driven narrative of de-dollarization and diversification at the sovereign reserve level. This trend underscores a complex recalibration in global finance with potential consequences for US debt financing, monetary policy efficacy, and the strategic composition of international reserves going forward.
