China moves in to scoop US Treasuries as Norway sours on US debt

US government debt is drawing mixed signals from two of the world’s largest wealth reserves this week as Chinese commercial banks have chosen it as the antidote to a rising yuan while Norway’s $2.3 trillion sovereign fund recommended reducing Treasury exposure to its government.

The perception around US debt matters as much at home as abroad, as foreign investors are the single largest source of financing for the US Treasury, which borrows heavily abroad to cover persistent deficits.

The share of foreign holders of outstanding Treasuries had fallen to around 40% as of mid-2025 from over 50% during the 2007-09 financial crisis, per Brookings. Ironically, China, which represents half of the duo mostly responsible for the pullback in demand over the last decade, along with Japan, is back to buying.

A return-hungry Norwegian fund, on the other hand, is threatening to trim its exposure.

Why Chinese lenders want dollar bonds now

According to Reuters, citing sources who chose to speak privately, China’s banks returned to buying US Treasuries as a matter of a yield problem that one source categorically described as a “famine” of safe assets worth owning at home.

Compared to Chinese government bonds that now pay very little, US Treasuries look more attractive to this class of buyers. Regulators are also wary of banks piling further into a distressed domestic market.

The 30 basis-point rise in 10-year Treasury yield since the start of June to about 4.76% hands Chinese banks a simple three-step playbook:

• Pull in dollar deposits.
• Park the money in government paper.
• Pocket the spread.

How Chinese banks are leveraging US Treasury rates

Chinese banks have a strategy to attract the dollars they now need: loosening rates after years of barely any movement. The biggest state lenders in China have shifted from the 2.8% cap they have held on dollar deposits since 2023.

The state banker Reuters cited said savers with more than $50,000 parked in their accounts are now getting rates above 3% since June, with 4% rates being offered by smaller and foreign banks since August.

By comparison, major state banks pay roughly 0.95% on yuan deposits.

As for Beijing, keeping money in dollars serves its currency aims. Chinese exporters are facing a squeeze from having the yuan gain nearly 9% on the dollar since the start of 2025.

By throttling that growth and maintaining a healthy dollar exchange rate, savers don’t convert as much, which eases upward pressure on the yuan.

China has about $1.18 trillion in foreign-currency deposits per People’s Bank of China figures as of the end of July to run this trade.

Before this tactical shift, Chinese holdings through US custodians were at a 13% decline on the year as of June, down to $633.4 billion, its lowest level since September 2008. China held more than double that amount in 2013.

For context, Chinese banks don’t route 100% of their US debt holdings via the same custodians. They also use custodians in places like Luxembourg and the Cayman Islands, so the official count does not give the full picture.

Norway does not want US debt

While Chinese banks lean in, Norges Bank Investment Management is preparing to lean out. In a letter to Norway’s Ministry of Finance dated September 1, the manager of the Government Pension Fund Global recommended cutting the government-bond share of its fixed-income benchmark from 70% to 50%.

Modern Diplomacy estimated the shift would trim roughly $80 billion from US Treasuries alone, redirecting money toward mortgage-backed securities, asset-backed bonds and investment-grade corporate credit while lifting Japanese government debt in the mix.

NBIM framed this as chasing risk premiums, not fleeing the dollar. In its submission, the bank argued that high government debt has become “a more general characteristic of developed economies” rather than a trait of a few countries, so a fund with a long horizon should be paid for holding it.

The bank also advised weighting government bonds by market value instead of GDP, and keeping emerging markets outside the index.

Norway’s finance ministry has set no public deadline on the proposal. The nearer marker is the Federal Reserve’s September 16 rate decision, which will shape how expensive Treasuries stay to own.

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