Speculation rises that China hides US debt holdings via Canada

Should China's actual Treasury holdings be higher than reported, one of the market's persistent concerns—a gradual Chinese retreat from US debt—would be less significant, potentially alleviating some anxiety over foreign participation in US auctions. The idea further illustrates how officially reported foreign holdings could deceive traders who interpret monthly drops as net selling. Investors should monitor auction indicators like indirect bidder demand, a typical gauge for foreign buyers, together with custody data; a divergence would lend support to the theory. The main driver would be any denial or confirmation from authorities, but neither appears close.

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China's holdings of US Treasuries might not be declining—merely relocating—and the signal lies in a $600 billion amount attributed to Canada.

Summary:

• Canada's ownership of US debt instruments—Treasuries and bonds—has climbed to almost $600 billion, in spite of trade tensions, Bloomberg reports.
• DoubleLine's Vitaliy Liberman noted the increase and received information that the growth was in fact attributable to China.
• China is reportedly transferring US securities to custodian banks based outside the US, thereby concealing its contribution to funding America's budget shortfalls.
• Although China's officially reported Treasury holdings have dropped, some investors and analysts think it is relocating assets rather than eliminating them.
• These assertions remain unsubstantiated.

Bond investors have taken note of a rapid increase in Canada's declared US securities holdings, fueling speculation that China might hold more US government debt than official data indicate, according to Bloomberg.

The report states that Vitaliy Liberman of DoubleLine observed Canada's inventory of US debt climbed sharply to roughly $600 billion in Treasuries and bonds, even amid a retaliatory tariff conflict. Liberman was informed that the growth was actually from China, which has been transferring US securities to non-US custodian banks. That would hide China's actual part in funding US fiscal deficits.

Official data show China's US Treasury holdings have decreased. According to Bloomberg, some investors and analysts interpret that drop as China moving its holdings to overseas accounts rather than truly reducing, to create an impression of decoupling. The assertions remain unverified, and the report's summary did not include official statements from Chinese or Canadian governments.

The theory is based on the data collection methodology. US Treasury information on foreign holdings usually registers securities by the custody location, not by the true owner. Bonds belonging to one nation but stored with a financial institution in another can consequently appear under that other nation's label. Analysts have repeatedly warned that this complicates determining any one country's accurate profile, especially for major official owners.

This issue is significant since China has traditionally been a major purchaser of US government bonds. A real Chinese pullback would eliminate a critical source of Treasury demand amid substantial borrowing, whereas concealed holdings would indicate demand steadier than published figures suggest. The facade of decoupling would also hold political importance in the context of trade disputes.

Market participants will monitor upcoming monthly publication of US Treasury reports on foreign ownership for additional abnormal shifts in custodial hubs and for any remarks from Chinese and Canadian authorities. Until confirmed, the numbers suggest a conceivable hypothesis rather than an established fact.