Since the Iran war, global central banks have sold off $90 billion in U.S. Treasury bonds.

Since the outbreak of the conflict between the U.S. and Iran, foreign central banks around the world have been continuously selling U.S. Treasuries. The magnitude and speed have sparked intense market vigilance, and the U.S. Treasury market is facing a severe test under multiple overlapping pressures.

Data from the New York Fed custody accounts show that, starting from the week before the conflict began (the week of February 25), foreign monetary authorities have net sold U.S. Treasuries for five consecutive weeks. The cumulative sell-off has exceeded $90 billion, and the selling pressure has mainly been concentrated in the most recent three weeks. U.S. Treasury holdings have fallen to the lowest level since 2012.

The direct cause of this round of U.S. Treasury selling is the urgent need in various countries for U.S. dollar liquidity. From foreign-exchange market intervention to paying energy import bills and then financing defense spending, the broad surge in demand for dollars is forcing central banks in these countries to liquidate the most liquid dollar assets they hold—U.S. Treasuries.

This round of selling takes place against a backdrop in which the U.S. Treasury market was already under pressure. Inflation concerns triggered by the Middle East conflict have driven this month’s yield increases on two-year and 10-year Treasuries to the largest level since 2024, pushing up borrowing costs for governments, companies, and residents. At the same time, Morgan Stanley’s latest report shows that the share of U.S. Treasuries held by foreign investors has fallen to the lowest level since 1997, further intensifying concerns that the demand structure for U.S. Treasuries is weakening in a structural way.

Five weeks of selling exceeding $9 billion, with sell pressure concentrated in the last three weeks

According to data from the New York Fed custody accounts, foreign central banks have reduced their holdings of U.S. Treasuries for five consecutive weeks starting from the week of February 25, for a total sell-off of more than $90 billion, with holdings falling to the lowest point since 2012. Notably, the intensity of selling accelerated clearly over the last three weeks, indicating that as the conflict continues, central banks’ liquidity needs have become increasingly urgent.

U.S. Bank’s U.S. rates strategist Meghan Swiber said, “Foreign official entities are selling U.S. Treasuries,” and also pointed out that Middle East oil-producing countries may be selling related assets to make up for shortfalls in oil revenue. Aegon Asset Management’s Chief Investment Officer Stephen Jones described this action as countries “stockpiling emergency supplies,” saying, “They are drawing down their contingency reserves.”

Other analysts also noted that some U.S. Treasury holdings may have been transferred to custody institutions other than the New York Fed rather than being sold directly, though this possibility is relatively low. Swiber also emphasized that since 2012, the size of the U.S. Treasury market has grown by about two times, making the current scale of selling particularly worth watching against this backdrop.

Turkey leads the sell-off, with multiple countries tapping foreign-exchange reserves

Among countries with disclosed specific data, Turkey’s sell-off stands out as the most prominent. Official data show that since February 27 (the day before the U.S. launched attacks on Iran), the Turkish central bank has sold about $22 billion worth of foreign government bonds from foreign-exchange reserves, mainly U.S. Treasuries. Meanwhile, Turkey also sold or swapped about 58 metric tons of gold, worth more than $8 billion, which has created a clear drag on gold prices.

Independent data from the central banks of Thailand and India also show that both countries’ foreign-exchange reserves have continued to decline since the outbreak of the war, but it is still unclear what portion of the decline is due to selling U.S. Treasuries versus U.S. dollar deposits. Analysts expect that countries such as India and Thailand that buy oil priced in U.S. dollars will face persistent pressure from reserve drawdowns.

In January this year, Kuwait, Saudi Arabia, and the UAE together held $313 billion in U.S. Treasuries. The three countries’ holdings have shown an overall upward trend since 2022, especially with the UAE increasing its holdings noticeably. The market widely expects that the above Middle East oil-producing countries may also join the sell-off to cope with defense spending and energy price shocks caused by the war.

Foreign holdings’ share falls to the lowest level since 1997

Morgan Stanley’s rates team’s latest report released over the weekend provides deeper structural context for the above concerns about selling. Based on analysis of data from the Federal Reserve’s Financial Accounts (Z.1), the firm shows that the proportion of U.S. Treasuries held by foreign investors has fallen to 32.4% of the total, the lowest level since 1997.

Looking at the breakdown in more detail, the coupons (interest-paying securities) of U.S. Treasuries held by foreign investors decreased by $56.3 billion quarter over quarter in Q4 2025, which is the main driver behind the overall decline in foreign holdings. At the same time, holdings of short-term Treasury bills increased by $31.8 billion, reaching a record high of $1.45 trillion.

The firm further noted that the share of interest-paying U.S. Treasuries held by foreign investors has continued to trend downward since the peak of 64.4% in 2008, and is now approaching a multi-decade low. Quarter-over-quarter changes in foreign investors’ demand for interest-paying U.S. Treasuries have been continuing to deteriorate since the middle of 2023, indicating that the structural weakening of foreign demand had already been forming before this round of conflict.

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