Foreign central banks have sold $82 billion worth of U.S. Treasury bonds held at the New York Federal Reserve since the Iran war began on February 28, pushing those custody holdings to their lowest level since 2012, according to Federal Reserve data reported by the Financial Times on March 31, 2026. The five consecutive weeks of selling mark one of the most sustained exits from U.S. government debt since the 2008 financial crisis — and analysts warn the real figure may be larger once official Treasury International Capital data is released in May.
What the Numbers Show
The New York Federal Reserve tracks foreign official holdings of U.S. Treasuries in what are called "custody accounts" — a real-time proxy for what foreign central banks, governments, and international institutions are doing with U.S. bonds. According to Fed data published through late March 2026, those holdings have dropped from roughly $2.782 trillion to $2.700 trillion — a decline of $82 billion — since the week of February 25, the week before U.S. military operations against Iran commenced.
Deutsche Bank strategists, cited in the Financial Times, estimated that the $75 billion decline in the four weeks to March 19 alone pointed to approximately $60 billion in net selling by central banks specifically — calling it some of the most aggressive official selling ever recorded in that span.
A separate analysis by Longbridge Financial, aggregating data through the end of March, put cumulative central bank sales above $90 billion when including quasi-official and sovereign wealth fund holdings that flow through the same custody system, with selling pressure concentrated in the final three weeks of the period.
Why Countries Are Selling
The Financial Times identified three primary drivers pushing central banks to liquidate U.S. debt. First, the sharp rise in energy costs triggered by Iran's closure of the Strait of Hormuz has created an acute demand for U.S. dollars among oil-importing nations — and central banks' most liquid dollar-denominated assets are Treasuries. Second, several central banks in the Middle East and in emerging markets have intervened to support their own currencies against a strengthening dollar, a move that typically involves selling dollar assets. Third, governments are facing elevated defense spending and import bills that require rapid cash conversion.
Longbridge Financial noted that Turkey was among the leading sellers, followed by Thailand and India, all of which faced simultaneous pressures from foreign exchange intervention, higher energy import costs, and rising defense expenditures.
Meghan Swiber, a U.S. rates strategist at Bank of America, said in a note cited by Longbridge that "foreign official sectors are selling U.S. Treasuries," and pointed to weak foreign demand at recent Treasury auctions as corroborating evidence.
The Reuters Caveat: Custody Data Is Imperfect
Reuters columnist Jamie McGeever, writing from Orlando on April 1, 2026, offered an important qualification: the Fed custody data is a useful proxy, but it is not a perfect measure of actual central bank selling.
McGeever noted that changes in custody holdings can reflect factors other than outright bond sales — including shifts in where central banks hold assets (moving bonds to non-U.S. custodians), changes in bond prices, and exchange rate fluctuations. He cited the example of 2025, when custody holdings fell by $238 billion — suggesting massive dumping — yet official Treasury International Capital data ultimately showed foreign central banks' net sales for the year totaled only $34 billion, less than 1% of their total holdings.
The official TIC data for March 2026 will not be released until May. "They probably did [sell]," McGeever wrote, citing the custody decline, weak auction demand, falling bond prices, and reports of Middle Eastern and emerging-market governments raising cash. "But at the margin and not in huge size. Not yet anyway."
That qualifier — "not yet" — is doing significant analytical work. The current selling is happening against a backdrop of continued military operations, sustained high energy prices, and a Hormuz closure with no resolution date.
The Structural Backdrop: Foreign Ownership Already Shrinking
The war-related selling is accelerating a longer-term trend. Morgan Stanley data shows that as of the end of 2025, foreign investors held 32% of the total outstanding U.S. Treasury market — the lowest share since 1997. That figure had been roughly flat at 33–34% since the pandemic.
In raw dollar terms, foreign ownership has never been higher: overseas investors held $9.23 trillion of U.S. government debt at year-end 2025, comprising $7.78 trillion in notes and bonds plus $1.45 trillion in bills, according to TIC data cited by Reuters. But the total Treasury market has grown faster than foreign buying, so the percentage share has quietly declined for years.
January 2026 — the last month for which official TIC data has been released — actually showed foreign central banks were net buyers, purchasing $50.6 billion in that month alone, the biggest monthly purchase in 13 years, per Reuters. That makes the subsequent February and March selling all the more striking as a sudden reversal.
Why This Matters Beyond the Immediate Crisis
The United States finances its deficit by issuing new debt, and foreign central banks have historically been reliable buyers that help keep yields lower than they would otherwise be. If central banks are pulling back — even temporarily — the U.S. Treasury must find alternative buyers, typically domestic investors and the private sector, often at higher yields. That means higher borrowing costs across the economy: mortgages, corporate debt, car loans.
The Council on Foreign Relations' Brad Setser has noted in his long-term analysis of these flows that the real picture of foreign Treasury holdings is often obscured by intermediaries — particularly in China's case, where Beijing has historically funneled large volumes of dollar assets into state-owned banks, making official figures look smaller than actual exposure. That dynamic cuts both ways: China's real holdings may be higher than reported, but so is its potential capacity to sell.
Deutsche Bank's estimate that five weeks of custody-account declines imply $60 billion in net central bank selling is significant even if the true number is somewhat lower. The direction is clear: the Iran war is imposing dollar-liquidity pressures on economies around the world, and the fastest path to dollars runs through the U.S. Treasury market.
The United States has long relied on the global demand for its debt as a structural advantage. What the last five weeks have shown — even with all the caveats about custody data imprecision — is that a sustained war in the Persian Gulf can test that advantage in real time. The question isn't whether some selling is happening. It's whether the pace accelerates as the conflict drags on.