- The questioned thesis: Vitaliy Liberman of DoubleLine and Wall Street trading desks argue that China has not abandoned US debt; instead, it has transferred custody to other countries.
- The math that doesn't add up: Positions registered under Canada in Treasuries and agency mortgage-backed securities have jumped to nearly $600 billion, more than four times their value from five years ago.
- The impact on your portfolio: The risk of an immediate collapse driven by Chinese liquidation of US bonds is lower than the headlines suggest, keeping Treasuries functional as a global fixed-income safe haven.
The narrative that China is dumping US securities on the market to retaliate against trade barriers runs up against a multibillion-dollar accounting distortion. According to reporting by InfoMoney based on analysis by U.S.-based asset manager DoubleLine, veteran New York traders maintain that the Chinese government has simply swapped direct official records for foreign intermediaries to protect its reserves.
Is China Really Selling US Treasuries?
Not to the extent that U.S. Treasury reports suggest. Vitaliy Liberman, a mortgage-backed securities specialist at DoubleLine Capital, found that while securities held directly in Beijing's name declined in official data, neighboring countries like Canada saw an unprecedented explosion in purchases of U.S. sovereign debt and agency securities.
Current market perception pointed to the Chinese government reducing its exposure in response to Donald Trump's tariffs and trade policies. However, upon investigating foreign investor flows, Liberman encountered a glaring contradiction: Canada bought nearly $600 billion in U.S. government securities, quadrupling its holdings in five years right in the middle of trade tensions and bilateral trade boycotts between North American nations.
When consulting major U.S. debt traders about the origin of this Canadian buying flow, the manager heard a recurring explanation behind the scenes at major financial institutions.
“The most experienced Wall Street professionals said, ‘It’s not Canada. It’s the other Canada.’ And by ‘other Canada,’ they meant China.” Vitaliy Liberman, manager at DoubleLine Capital, speaking to InfoMoney
Why Did Canada’s Volume Quadruple?
Because the U.S. Treasury system records the country where the financial institution holds custody, not the nationality of the asset's ultimate owner. When a central bank or sovereign wealth fund allocates capital through accounts based in Toronto, Montreal, London, or European financial centers, U.S. government statistics credit the holdings to the territory where the order settled.
This operational camouflage mechanism allows major geopolitical powers to continue collecting dollar-denominated returns without exposing the true scale of their portfolios to public scrutiny or direct sanctions. The cumulative growth in Canadian custody highlights this atypical concentration of capital.
The volume involves both U.S. Treasuries and obligations issued by federal housing finance agencies in the United States. A surge exceeding 300% in five years would hardly match the natural demand of the Canadian banking and pension system, especially in a macroeconomic climate marked by tariff friction between Washington and Ottawa.
What Is the Difference Between the De-Dollarization Narrative and Custody Reality?
The narrative focuses on de-dollarization rhetoric in public speeches, while the reality of managing reserves demands liquidity and security that only the U.S. market provides. Countries holding hundreds of billions of dollars in trade surpluses find few global alternatives capable of absorbing sums of this magnitude without triggering severe currency depreciation.
| Aspect | The Retaliation Narrative | What Wall Street Points To |
|---|---|---|
| Chinese Participation | Accelerated decline and abandonment of U.S. public securities | Concealed maintenance via intermediaries and partner banks |
| Canada’s Role | Ordinary foreign investor buying U.S. debt | Custody platform used by third parties ("the other Canada") |
| Asset Classes | Indiscriminate flight from dollar-denominated assets | Active search for Treasuries and housing agency securities |
| Main Motivation | Diplomatic sanctioning of U.S. protectionist policies | Geopolitical risk management without sacrificing returns |
As highlighted in market coverage, the trend coincided with periods of heavy global demand for safety in Treasuries, driven by corrections in technology stocks and global risk aversion. Rather than dumping these assets and taking losses on a block sale, major holders prefer discretion.
What Are the Scenarios for the U.S. Debt Market?
The market currently works with two distinct paths for the behavior of these sovereign bonds. On one side is the hypothesis of technical stability driven by ongoing, masked Asian capital; on the other, the risk of an actual liquidation if trade conflicts reach a breaking point.
China continues to finance U.S. debt through partner jurisdictions. Global interest rates keep responding to traditional Fed monetary policy without abrupt supply shocks.
If Beijing genuinely decides to offload the $600 billion accumulated via third parties, the excess supply would cause Treasury yields to spike, driving up credit costs worldwide.
For investors, following this dynamic separates headline panic from actual market mechanics. Dollar liquidity remains the anchor of the international financial system, and the preference for U.S. housing agencies signals ongoing appetite for assets offering yield and implicit government backing.
What Does This Change for Investors in Brazil?
It shifts the risk assessment on dollar-denominated investments and local long-term interest rates. Fears that the U.S. Treasury will lose its largest external buyers are often used to predict the end of the dollar or an uncontrollable spike in global yields. Knowing that demand persists through third parties brings sobriety to the analysis.
If you hold Treasury ETFs, foreign fixed-income funds, or dollar-linked assets, Wall Street's finding that China remains allocated in the U.S. eases fears of a forced collapse in sovereign debt. At the same time, when global markets turn risk-off, the flight to Treasuries tends to pressure emerging-market currencies and lift the yield curve in Brazil, calling for caution on the long end of inflation-linked bonds (IPCA+).
As long as U.S. Treasury statistics remain subject to territorial custody shifts, isolated official data should be read with caution. The presence of nearly $600 billion in Canadian hands is the strongest clue that sovereign capital prioritizes wealth preservation above any diplomatic confrontation.
Rico aos Poucos Verdict
The thesis that China has abandoned U.S. government bonds fails to convince major Wall Street trading desks. The warning raised by Vitaliy Liberman (DoubleLine) reveals that capital flows have found alternative custody channels, such as Canada, keeping the Asian nation connected to the returns and liquidity of the U.S. currency. For individual retail investors, this means the safety of Treasuries as a global risk-free asset remains intact, and interest rate fluctuations respond far more to U.S. inflation and employment cycles than to any supposed orchestrated retaliation by Beijing.
