Is there a crack in the external demand for U.S. debt? BofA warns: Foreign central banks have sold off US$48 billion in U.S. debt since March

On Monday Eastern Time, Bank of America issued a report warning that central banks around the world have been selling US Treasuries since March this year, indicating that they are reducing their investments in US dollar assets and seeking investments in other assets.

Bank of America warned that this selling trend is unusual amid the current weakness of the US dollar. They also expressed concerns about the future demand for US Treasuries from overseas central banks.

"Unusual" Selling

On Monday Eastern Time, a team led by Meghan Swiber, a strategist at Bank of America, released a report titled "Cracks Appear in Overseas Demand for US Treasuries."

Data in the report showed that, in the week ending June 11, global central banks and other official entities reduced their average holdings of US Treasuries at the Federal Reserve Bank of New York by $17 billion, with a cumulative reduction of $48 billion since the end of March. In addition, foreign holdings of the US Fed's reverse repo facility have decreased by about $15 billion since the end of March.

Analysts wrote in the report that this selling behavior is "unusual" because central banks typically purchase US Treasuries when the US dollar is weak, but their actions this year have diverged from this pattern amid the dollar's weakness.

Prospects for US Treasury Demand Are Concerning

In recent months, international market interest in US Treasuries has attracted increasing attention.

Since US President Trump took office, his chaotic trade and fiscal policies have disrupted financial markets, leading overseas buyers to tend to avoid US assets—the so-called "sell America" trade.

Year-to-date, the US dollar index has fallen by 9.48%, reaching a low point over the past three years, partly due to concerns that tariffs will affect the US economic outlook.

"This capital flow may reflect a shift in the official sector's holdings from the US dollar to diversification," the strategists wrote, adding that they "remain concerned about the prospects for foreign demand for US Treasuries."

Overseas investors have been a significant force in purchasing US Treasuries. In fact, according to the US Fed's capital flow data, in Q1 this year, almost all of the demand for US Treasuries in the market came from broker-dealers and foreign investors.

Swiber wrote that this highlights "a concerning picture." She said, "The future trajectory of overseas demand is concerning, especially considering that a growing number of global investors wish to reduce their US asset holdings or increase their hedging ratios."

The strategists also pointed out that foreign investors' participation in recent 2-year and 20-year Treasury auctions has "continued to weaken."