Foreign central banks have sharply reduced their holdings of US Treasuries since the outbreak of the Iran war, reflecting mounting financial pressure on their economies and currencies. Data from the New York Federal Reserve shows these holdings have dropped to their lowest level since 2012, as countries move to sell dollar-denominated assets to stabilize their domestic markets.
Details
The value of US Treasuries held at the New York Fed fell by about $82 billion since late February, reaching $2.7 trillion in a notable short-term decline.
This shift comes amid the war’s economic fallout, particularly after energy prices surged following the closure of the Strait of Hormuz, increasing pressure on oil-importing nations:
- Countries such as Turkey, India, and Thailand are likely among the biggest sellers to cover rising energy costs.
- Turkey’s central bank sold around $22 billion in foreign assets since late February.
- Several central banks have intervened in currency markets to support their currencies, requiring the sale of dollars or dollar-based assets.
On the other hand, some oil-exporting nations may also sell part of their holdings to offset revenue volatility, though their impact on the market remains limited.
The pressure extends beyond countries, as this sell-off comes at a time of growing stress in the US bond market. Yields on two- and ten-year Treasuries have risen at the fastest pace since 2024, increasing borrowing costs for governments, businesses, and households.
What’s Next?
Investors are watching whether the sell-off will deepen if the war continues, and how it may further pressure the dollar and global debt markets.
