India, China trimming US treasury holdings on concerns over US credit rating, rising debt pile

Bonds

India and China - two of the top 15 economies holding sizeable US treasuries - have reduced their exposure to US debt between 2024 and 2025 following credit rating downgrades by Moody's and Fitch Ratings, along with America’s soaring national debt.

According to the Bloomberg data, China has reduced exposure to US treasuries by 1.8 percent or $13.5 billion in its portfolio and India cut holdings by 0.4 percent or $1 billion, between April 2024 and April 2025.

China’s holding of US Treasuries came down to $757.2 billion as on April 2025 from $770.7 billion as on April 2024, and India’s holding fell to $232.5 billion as on April 2025 from $233.5 billion as on April 2024. During this period, yield on the 10-year US treasury notes were trading in the range of 3.60-4.80 percent.

“The reduction in holdings is due to high inflation and high fed funds rate causing revaluation losses for the holders of these treasuries, the US’ worsening fiscal debt situation and rating downgrades prompting risk premium on US treasuries which were other considered safe assets,” said Dhiraj Nim, Economist/FX Strategist at ANZ Research.

A treasury head with state-owned banks said the reduction in holding by both countries were also because of rising bond yields leading to fall in prices, making their investment unattractive.

The US has face heightened uncertainties in 2024 and 2025 due to change in political leadership, imposition of tariffs, recession risk, and potential economic slowdown.

Going ahead, growth in US is expected to decelerate from 2.8 per cent in 2024 to 1.6 per cent in 2025, with higher tariffs and policy uncertainty expected to weigh on private investment and consumption, according to a recent United Nations report.

"The tariff shock risks hitting vulnerable developing countries hard, slowing growth, slashing export revenues, and compounding debt challenges, especially as these economies are already struggling to make the investments needed for long-term, sustainable development," said Li Junhua, United Nations Under-Secretary-General for Economic and Social Affairs said in a report.

Further, experts in India are of the view that higher uncertainty after tariffs over Iran-Israel is also forcing countries to grow their gold reserves.