TODAY’S NUMBERS
5.17% (US 10-year yield, highest since 2007) · 54.3% (indirect bid at Wednesday’s five-year auction; average 65.2%) · $1.10trn (Japan’s Treasury holdings, down $51bn in a year). Yields up, big foreign creditors buying less: the world still lends to Washington, but at a higher price.
On Wednesday the US Treasury sold $70bn of five-year notes at 5.033%, the highest yield at that maturity since before 2006. Indirect bidders, the category that captures foreign central banks and overseas funds, took just 54.3% against a 65.2% average, and dealers were left holding 15.8%. Thursday’s $44bn seven-year sale went more smoothly but still drew a below-average foreign share. By Friday the 10-year yield sat at 5.17% and the 30-year at 5.47%. The question now is not whether yields are high. It is who is still willing to fund the United States at these prices.
The mechanism
Start with Washington’s largest foreign creditor. Japan held $1.104trn of Treasuries in July, down from $1.155trn a year earlier. At home, the 10-year JGB yield is above 3%, a 30-year high, which erodes the case for owning currency-hedged Treasuries. Japanese banks have sold roughly $70bn of foreign bonds this year, after buying $35bn in 2025. The heavyweights, life insurers with ¥438.6trn ($2.78trn) in assets and the $1.8trn Government Pension Investment Fund, have not yet followed; they are waiting for JGB yields to stop rising. As one strategist told Reuters this week, the fast-money carry trade has been unwound, but “the slow-money one has not started.”
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China’s holdings fell to $618bn from $696bn over the same twelve months. Norway’s $2.3trn wealth fund has proposed cutting US Treasuries from 34.1% to 21.9% of its bond benchmark, moving about $80bn into agency mortgage-backed securities. That money stays in dollars, but it moves away from lending directly to the US government.
Gulf money is taking a different route. Brent touched $108 on Thursday after Houthi strikes aimed at Saudi Arabia’s Yanbu oil hub, a windfall for Gulf producers. In past oil booms, much of that surplus was recycled into Treasuries. Now much of it goes into strategic deals: on 10 September the UAE pledged €40bn ($46bn) for Germany, aimed at AI, data centres and energy. Saudi Treasury holdings have barely moved, at $142.4bn.
The winners are Japanese savers who are finally paid to stay home, the yen, agency MBS and European infrastructure hungry for capital. The losers are the US Treasury, whose interest bill is rising faster than Scott Bessent’s $4.1bn buyback on Thursday can offset, and American homebuyers facing mortgage rates above 7%.
Why it matters
Reserve-currency power is usually described as a privilege. In practice, it depends on the marginal buyer. Foreign official institutions still bought $44.4bn of long-term US securities in July, according to Treasury data, while private foreign investors were net sellers. The US is leaning harder on the patience of governments at the moment its trade and security policy is testing that patience.
That shifts leverage in subtle ways. Tokyo can now say, credibly, that its savers have a domestic option, which changes the tone of any conversation about the $550bn US investment pledge it made in last year’s tariff deal. Norway frames its rebalancing as technical diversification, but it still signals that the world’s largest sovereign fund wants less direct exposure to US fiscal policy. And the Gulf is diversifying its protectors as it diversifies its portfolios: this week Riyadh summoned Turkish and Pakistani military chiefs under its new defence pact, while Abu Dhabi deepens its ties with Berlin.
None of this amounts to de-dollarisation. It is quieter than that and, for Washington, possibly more expensive. Each creditor keeps lending, but demands a higher price and more in return. A country that must pay 5% to fund its deficit has less room for tariff wars, sanctions campaigns and industrial subsidies, and its creditors know it.
Watch for
16 October: the Treasury publishes TIC capital-flow data for August, the next official read on whether foreign creditors kept buying. If Japanese and Chinese holdings fall again and foreign official purchases drop well below July’s $44.4bn, this week’s weak auctions were a trend, not a blip. If official buyers step up, Washington still has willing lenders, just at a higher price. The Fed’s 28 October decision, with markets pricing a 71% chance of another hike, follows 12 days later.
