“It is not Canada. It is the other Canada.”Senior Wall Street traders to DoubleLine’s Vitaliy Liberman
Is China Actually Dumping U.S. Debt?
Not necessarily: Wall Street money managers say China may simply have shifted custody of its securities to offshore intermediaries. While headline official statistics show a steady decline in Beijing’s direct holdings of U.S. government debt, holdings recorded in other countries have surged without any clear economic explanation.
This dynamic drew wider attention following an account by Vitaliy Liberman, a mortgage-backed securities portfolio manager at U.S. asset management firm DoubleLine. Regularly analyzing monthly filings detailing foreign creditors of U.S. debt, Liberman was looking for signs of a coordinated buyer strike by trading partners in response to tariff proposals championed by Donald Trump.
Instead of a broad exodus among foreign buyers, the data showed an unusual shift: the volume of U.S. securities held under Canadian custody quadrupled over five years, reaching unprecedented levels in capital markets history.
Total Treasuries and federal agency debt registered in Canada.
U.S. debt held in Canadian custody more than quadrupled over a five-year span.
The idea that China has dumped its U.S. exposure en masse may be a misreading of custody data.
The Mystery of the "Other Canada": How Nearly $600 Billion Changed Addresses
Canada has quietly accumulated nearly $600 billion in Treasuries and debt issued by U.S. federal housing agencies. That total is four times higher than the level recorded half a decade ago. The question puzzling analysts like Liberman was straightforward: why would Canadian investors and institutions expand their exposure so aggressively amid bilateral tariff friction and calls to boycott U.S. goods?
When he checked with veteran bond traders in New York, the answer was unambiguous. Experienced market participants noted that the holdings reported under Canada's name are largely Chinese capital held through third-party custodians.
“Senior Wall Street traders said, ‘It is not Canada. It is the other Canada.’ And by ‘the other Canada,’ they meant China.”Vitaliy Liberman, portfolio manager at DoubleLine
In practice, when a central bank or sovereign wealth fund wants to lower its geopolitical profile, it does not need to sell its assets in the open market. It can simply transfer custody of the securities to accounts registered in allied jurisdictions or global financial hubs, such as banks based in Canada, the United Kingdom, Belgium, or Luxembourg. U.S. Treasury data records the location of the immediate custodian, not the ultimate beneficial owner.
Why Beijing Struggles to Walk Away from Treasuries
The narrative that China plans to pull the rug out from under the United States by liquidating trillions in sovereign debt runs into basic structural limits. The Chinese economy is an engine of massive trade surpluses: month after month, the country sells more to the world than it buys, building dollar reserves that must be deployed into deep, liquid markets.
No other market in the world can absorb hundreds of billions of dollars without severe price distortions. European sovereign debt, gold, and emerging market currencies offer tiny capacity compared to the scale of the Treasury market. If China attempted a sudden, aggressive selloff, it would depreciate its own reserve holdings and drive the yuan higher, directly hurting Chinese export competitiveness.
By shifting custody through offshore accounts, monetary authorities can maintain their dollar yields without presenting an easy target for immediate sanctions or drawing domestic scrutiny for financing a geopolitical competitor.
If China is not disorderly liquidating U.S. debt, the risk of a geopolitical Treasury market crash is far lower than headline alarms suggest. For Brazilian investors, this means the policy rate and Treasury yields continue to be driven by U.S. inflation and Federal Reserve policy, rather than sudden Chinese retaliation. Investors allocating to global fixed income or local inflation-linked bonds (such as long-dated IPCA+ through Tesouro Direto, Brazil's retail government-bond platform) should focus on fiscal fundamentals and macroeconomic activity rather than ungrounded geopolitical panic.
The Bond Rally Amid Global Volatility
The Treasury market showed strength recently, staging a strong rally during pullbacks in Wall Street tech shares. As global risk aversion rose, U.S. sovereign bonds once again served as the primary safe haven for international investors.
This flight to safety highlighted a market divergence: while U.S. fixed income strengthens when investors seek shelter, Brazilian Tesouro Direto yields frequently face pressure from a stronger U.S. dollar, fiscal uncertainty, and domestic risks. In Brazil's local market, long-dated IPCA+ yields climbed during days of broader market caution, demonstrating that local investors must separate U.S. interest rate dynamics from the specific risk premium demanded for Brazilian assets.
What to Watch Going Forward
To avoid surface-level interpretations of foreign demand for U.S. debt, investors should track three key factors in upcoming cross-border capital reports:
U.S. Treasury TIC Reports — Track not only China’s direct line item, but also combined changes in custodial jurisdictions such as Canada, Belgium, and the United Kingdom.
China's Trade Surplus — As long as Beijing posts dollar-denominated trade surpluses, it must reinvest those inflows into dollar assets.
The 10-Year Treasury Yield — Long-term U.S. benchmark yields anchor global borrowing costs and offer the clearest market gauge of demand for sovereign debt.
Beware of alarmist narratives: Headlines predicting the immediate collapse of the dollar or an imminent Chinese exit from Treasuries routinely overlook international settlement mechanics and the practical constraints of global reserve management.
