MC EXCLUSIVE India's holdings in US Treasury down 21% in 2025, first time in four years

A softer dollar outlook, combined with expectations of an eventual easing cycle by the US Federal Reserve, may have further reduced the attractiveness of adding to long-duration dollar assets.

• India cut US Treasury holdings by 21 percent from Oct 2024 to Oct 2025
• Shift reflects India's move to diversify forex reserves amid global uncertainty
• India shifts reserves to gold and non-dollar assets, cutting dollar reliance

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India sharply cut its exposure to US Treasury notes over the past year, underlining a gradual but clear shift in the country’s foreign exchange reserve management strategy towards greater diversification amid global economic and geopolitical uncertainty.

According to Bloomberg data, India’s holdings of US Treasury notes fell by about 21 percent between October 31, 2024 and October 31, 2025, declining to $190.7 billion from $241.4 billion. This marks the first annual decline in India’s US Treasury investments in the last four years, breaking a period during which holdings had largely trended higher or remained stable.

The drawdown comes despite relatively attractive yields in the US bond market. During the period, the yield on the benchmark 10-year US Treasury traded in a wide range of 4.0–4.8 percent, levels that would typically support sustained foreign demand. However, economists say the reduction in holdings appears to be driven less by yield considerations and more by a strategic reassessment of reserve allocation.

"This points to India’s approach towards diversification and marks a shift in its forex strategy,” said Dipanwita Mazumdar, Economist at Bank of Baroda.

She noted that the reduced exposure to US Treasuries also indicates a lower dependence on the US dollar at a time when the dollar index (DXY) has shown a softening bias, partly due to signs of weakening labour market conditions in the US.

A softer dollar outlook, combined with expectations of an eventual easing cycle by the US Federal Reserve, may have further reduced the attractiveness of adding to long-duration dollar assets. At the same time, rising global geopolitical risks and fragmentation in trade and financial flows have prompted several central banks, including the Reserve Bank of India (RBI), to reassess the composition of their foreign exchange reserves.

Market participants say India is likely reallocating part of its reserves into alternative assets and currencies, including gold, other sovereign bonds and non-dollar assets. Gold, in particular, has regained prominence as a reserve asset globally, given its role as a hedge against currency volatility, inflation risks and geopolitical shocks.

"In the current volatile global political landscape, we may again see higher gold holdings by the RBI,” Mazumdar said, adding that such a move would be consistent with the broader global trend of central banks increasing their gold reserves.

India’s evolving reserve strategy reflects a broader shift among emerging market economies, which are increasingly seeking to balance safety, liquidity and returns while reducing concentration risk in dollar-denominated assets. While the US dollar is expected to remain the dominant reserve currency, experts believe India’s latest move signals a more calibrated and diversified approach to managing its external buffers going forward.