Two of the world's largest pools of wealth are sending opposite signals on US government debt this week. Chinese commercial banks have turned to Treasuries as a hedge against a rising yuan, while Norway's $2.3 trillion sovereign fund — the world's largest — has recommended to its government that Treasury exposure be reduced.

Perception of US debt matters at home as well as abroad, since foreign investors are the single largest source of financing for the US Treasury, which borrows heavily overseas to cover persistent deficits. According to Brookings, the share of outstanding Treasuries held by foreigners had fallen to roughly 40% as of mid-2025, down from more than 50% during the 2007-09 financial crisis. China, together with Japan, accounts for much of the pullback in demand over the past decade — yet it is now back to buying. Norway's return-hungry fund, by contrast, is preparing to trim its exposure. The divergence illustrates a broader question facing global allocators: with US fiscal deficits persistently wide, foreign buyers are no longer a uniform bloc, and shifts at the largest holders can move the marginal demand for Treasury paper.

Why Chinese lenders want dollar bonds now

According to Reuters, citing sources who spoke privately, China's banks returned to buying US Treasuries because of a yield problem. One source categorically described the situation as a "famine" of safe assets worth owning at home. Chinese government bonds now pay very little, making US Treasuries more attractive to this class of buyers. Regulators are also wary of banks piling further into a distressed domestic market.

The 30 basis-point rise in the 10-year Treasury yield since the start of June, to about 4.76%, hands Chinese banks a simple three-step playbook: pull in dollar deposits, park the money in government paper, and pocket the spread. The gap between what the banks pay depositors and what Treasuries yield is what makes the carry trade work.

How Chinese banks are leveraging US Treasury rates

Chinese banks have a strategy for attracting the dollars they now need: loosening rates after years of barely any movement. The largest state lenders have moved away from the 2.8% cap they held on dollar deposits since 2023. The state banker cited by Reuters said savers with more than $50,000 in their accounts have been getting rates above 3% since June, while smaller and foreign banks have offered 4% rates since August. By comparison, major state banks pay roughly 0.95% on yuan deposits.

For Beijing, keeping money in dollars also serves its currency aims. Chinese exporters are squeezed by the yuan's gain of nearly 9% against the dollar since the start of 2025. By throttling that appreciation and maintaining a healthy dollar exchange rate, savers convert less, easing upward pressure on the yuan. China has about $1.18 trillion in foreign-currency deposits, per People's Bank of China figures as of the end of July, to run this trade.

Before this tactical shift, Chinese holdings through US custodians were down 13% on the year as of June, at $633.4 billion — the lowest level since September 2008. China held more than double that amount in 2013. Chinese banks do not route 100% of their US debt holdings through the same custodians; they also use custodians in places like Luxembourg and the Cayman Islands, so the official count does not give the full picture.

Norway moves to reduce US debt exposure

While Chinese banks lean in, Norges Bank Investment Management is preparing to lean out. In a letter to Norway's Ministry of Finance dated September 1, the manager of the Government Pension Fund Global recommended cutting the government-bond share of its fixed-income benchmark from 70% to 50%. Any change to the benchmark ultimately requires the finance ministry's approval, a process that has historically involved public consultation.

Modern Diplomacy estimated the shift would trim roughly $80 billion from US Treasuries alone, redirecting money toward mortgage-backed securities, asset-backed bonds, and investment-grade corporate credit while increasing Japanese government debt in the mix.

NBIM framed the move as chasing risk premiums rather than fleeing the dollar. In its submission, the bank argued that high government debt has become "a more general characteristic of developed economies" rather than a trait of a few countries, so a fund with a long horizon should be paid for holding it. The bank also advised weighting government bonds by market value instead of GDP and keeping emerging markets outside the index.

Norway's finance ministry has set no public deadline on the proposal. The nearer marker is the Federal Reserve's September 16 rate decision, which will shape how expensive Treasuries remain to own — and, by extension, whether the spread that drew Chinese banks in stays wide enough to keep them buying.