Foreign Demand for US Bonds Is Falling
The share of US Treasury bonds held by foreign governments has fallen to its lowest level in the last 25 years. Today, foreign governments hold only about 12.5% of all US Treasuries.
Around 15 years ago, this number was close to 35%. This shows a major change in the way countries are managing their reserve assets.
New US Debt Is Getting Less Foreign Support
The data also shows that foreign governments are not buying new US Treasury bonds like they did before. Even if they are not selling the bonds they already own, they are not adding more to their holdings. As new bonds are issued, the share of foreign ownership keeps falling. When older bonds mature, many governments are also choosing not to renew their investments.
A Big Change in the Global Financial System
This trend points to a major change in the global financial system. Such a shift does not happen often and could be one of the biggest monetary changes seen in many decades. The US dollar may continue to be widely used for global payments, but many countries appear to be reducing their dependence on US Treasury bonds as a reserve asset.
Gold Is Taking a Bigger Place in Reserves
At the same time, gold is becoming a much larger part of central bank reserves. Earlier, gold made up only a small single-digit share of many reserve portfolios. Now, in many cases, that share has increased to around 25% to 30%. This shows that many countries are giving more importance to gold as a long-term store of value.
What This Could Mean for Investors
If governments continue issuing more debt, the money supply may increase over time. Higher money supply can lead to higher inflation, and inflation often pushes the prices of many assets higher. Because of this, keeping some gold in a portfolio can help balance risk. Along with gold, other quality assets may also benefit if inflation continues to rise in the coming years.
