De-Dollarization: Canada Leads $49 Billion Sell-Off in U.S. Treasuries

The de-dollarization of US Treasuries is happening at an alarming rate right now, with Canada spearheading a significant sell-off that’s making waves across global markets. Treasury data shows that foreign investors sold no less than $13.3 billion of U.S. notes and bonds in January, following even larger sell-offs of $49.69 billion in December. This three-month selling trend breaks a 15-month streak of foreign buying and is raising concerns about shifting global confidence in US Treasuries.

Find Out Why De-Dollarization and Global Shifts in U.S. Treasuries Matter for Your Portfolio

Foreign Buyers Retreat from US Treasuries

Foreign residents have been selling US Treasuries for three consecutive months at the time of writing. Canada was the largest net seller in January, while the UK, interestingly enough, switched from being December’s largest seller to January’s top buyer. Norway and Japan also followed as the second and third largest buyers. This pattern definitely suggests central banks are actively reducing their dependence on US Treasuries as financial buffers.

What Do Central Banks Choose Instead?

The de-dollarization of US Treasuries coincides with central banks worldwide increasing their gold reserves. In 2024, they also added an impressive 1,045 tons to global gold reserves, exceeding 1,000 tons for the third straight year.

Phillip Wool, chief research officer at Rayliant Global Advisors, had this to say:

The shift accelerated after the US froze Russian assets, which prompted many nations to reconsider their exposure. Foreign buyers concerned about sanctions or asset freezes are working to shield their economies from potential US actions.

Market Impact Cushioned by Valuation Effects

The impact of US Treasuries sell-offs appears to be partially cushioned by what are called “valuation effects.” Foreign holdings of all U.S. securities remained relatively stable at around $8.53 trillion in January and December.

Matthew Raskin, Deutsche Bank’s U.S. Head of Rates Research, explained:

These valuation adjustments provide some buffer against the immediate impact of foreign selling.

Investment Implications

Despite the ongoing de-dollarization trend, the dollar remains dominant with about 88% of foreign exchange transactions. However, continued foreign central bank withdrawals could eventually erode support for the US economy.

The selling might also reflect routine debt realignment strategies. From November to January, the dollar ROSE by approximately 4.2%. When the dollar strengthens and rates remain high, central banks often sell US Treasuries to limit local currency depreciation and avoid higher hedging costs.