Foreign Investors Pull Back from US Debt Amid Fiscal Concerns

Foreign countries are gradually retreating from US debt markets, signaling a potential shift in confidence regarding America’s long-term fiscal health. Denmark, for instance, has reduced its holdings of US Treasuries to record lows, while both India and China continue to scale back exposure to US government securities. This persistent decline among major foreign holders highlights concerns about fiscal discipline and the sustainability of US debt, with wider implications for global capital costs, liquidity conditions, and valuations of risk assets.

Denmark Leads the Retreat

Over the past year, Denmark cut its US Treasury holdings by $4 billion, a 30% reduction, according to The Kobeissi Letter. The Scandinavian nation now holds around $9 billion in Treasuries, the lowest in 14 years and less than 1% of Europe’s total US government debt exposure of $3.6 trillion. Danish pension fund AkademikerPension has also announced plans to fully divest roughly $100 million in Treasuries by the end of the month, citing concerns over US government finances. While US Treasury Secretary Scott Bessent downplayed Denmark’s exit as insignificant, the move reflects broader caution among smaller foreign holders.

China and India Scale Back Holdings

Denmark’s retreat is not isolated. China’s Treasury holdings fell to $682.6 billion in November, the lowest level since 2008, and some analysts warn that continued reductions could push Chinese exposure below $500 billion. India has followed a similar path, decreasing its holdings to around $190 billion by October 2025. These trends point to a fundamental reassessment of US credit risk by major foreign investors, beyond ordinary portfolio rebalancing.

Japan and the UK Offer a Counterbalance

Not all foreign investors are reducing exposure. Japan increased its Treasury holdings by $2.6 billion to $1.2 trillion, while the UK expanded its position by $10.6 billion to $888.5 billion. These moves offer some stability but are unlikely to fully offset the broader retrenchment from other large holders.

Implications for Global Markets and Crypto

Analysts warn that the ongoing sell-off in US Treasuries could trigger ripple effects across global markets. Falling Treasury prices push yields higher, raising borrowing costs and tightening liquidity. Since Treasuries serve as primary collateral for banks, funds, and market makers, declining values weaken collateral and force institutions to reduce risk exposure. This cascade can impact equities and cryptocurrencies, which rely heavily on easy liquidity and cheap funding.

As Wimar, a market commentator, explained, “Stocks and crypto do not live in a vacuum. They are built on cheap funding + easy liquidity. So when bonds get hit, it is not ‘boring bond stuff.’ It is collateral getting weaker.” In this sequence, Treasuries react first, followed by equities, with cryptocurrencies often experiencing the sharpest swings due to heightened leverage and risk sensitivity.

The retreat of foreign investors from US debt thus signals not only shifting confidence in fiscal policy but also the potential for broader volatility across risk assets, including crypto markets.