Shifting Strategies: India and China Cut US Treasury Holdings Amid Global Economic Uncertainty

India and China have significantly reduced their US treasury holdings between April 2024 and April 2025, citing rising bond yields, credit rating downgrades, and America’s growing fiscal debt. China cut holdings by $13.5 billion, while India reduced exposure by $1 billion. Escalating US political and economic uncertainties, including tariffs and recession risks, have contributed to this trend. A UN report predicts slower US growth and highlights the impact of tariffs on developing nations. Nations are diversifying reserves, increasingly favoring gold.

In a significant financial development, India and China—two of the world’s largest economies—have reduced their investments in US treasuries over the past year. This shift comes in the wake of credit rating downgrades by major agencies like Moody’s and Fitch, coupled with America’s escalating national debt and economic volatility.

According to Bloomberg data, China lowered its US treasury holdings by 1.8% (or $13.5 billion), while India reduced its exposure by 0.4% (or $1 billion) between April 2024 and April 2025. By April 2025, China’s holdings stood at $757.2 billion, down from $770.7 billion a year earlier. Similarly, India’s holdings declined to $232.5 billion in April 2025, compared to $233.5 billion in April 2024. During this period, the yield on 10-year US treasury notes fluctuated between 3.60% and 4.80%.

Factors Behind the Shift

The reduction in treasury holdings can be attributed to several interconnected factors. High inflation and elevated federal funds rates have led to revaluation losses for treasury holders. Additionally, the US’s worsening fiscal debt and recent credit rating downgrades have increased the risk premium on assets that were once regarded as safe investments.

Dhiraj Nim, an economist and FX strategist at ANZ Research, highlighted the impact of these dynamics, stating that the uncertain fiscal landscape and rising yields have made US treasuries less attractive for major investors. A senior treasury official at a state-owned bank echoed this sentiment, pointing out that rising bond yields have caused a decline in bond prices, further discouraging investment in these instruments.

Broader Economic Context

The backdrop of these financial adjustments includes heightened economic and political uncertainties in the United States. The years 2024 and 2025 have seen challenges such as leadership changes, the imposition of tariffs, recession risks, and potential economic slowdowns. These factors have cast doubt over the stability of the US economy, prompting cautious decision-making by global investors.

A recent United Nations report projects that US economic growth will slow from 2.8% in 2024 to 1.6% in 2025. The report attributes this deceleration to higher tariffs and policy uncertainty, which are expected to dampen private investment and consumer spending.

Li Junhua, United Nations Under-Secretary-General for Economic and Social Affairs, emphasized the ripple effects of these tariff policies on developing nations. “The tariff shock risks hitting vulnerable developing countries hard, slowing growth, slashing export revenues, and compounding debt challenges. This is especially concerning as these economies are already grappling with the need to fund long-term, sustainable development,” he stated.

A Shift Toward Gold

Another emerging trend among countries like India is an increased focus on building gold reserves. Experts suggest that growing geopolitical uncertainties—such as the Iran-Israel conflict—are pushing nations to diversify their reserves and hedge against risks associated with traditional financial assets like treasuries.

The Road Ahead

As the global economic landscape continues to evolve, the actions of major economies like India and China underscore the importance of adaptability in financial strategies. Whether driven by economic, geopolitical, or fiscal concerns, these shifts signal a broader reevaluation of what constitutes a "safe haven" in today’s interconnected world.

The coming years will reveal how these adjustments influence global trade dynamics and the stability of international financial markets. For now, one thing is clear: the era of unquestioned reliance on US treasuries as the gold standard of safe investments may be undergoing a fundamental transformation.