The divide of the world reignites the discussion of de-dollarization. As the U.S. dollar index depreciated from 115 to 101 or nearly 12 percent, anyone, including foreign governments, that held too much U.S. dollar would try to underweight it. While the existing holders of Treasuries would be subject to mark-to-market loss when bond yields rise, those who have not yet entered the market might find treasuries attractive, given an outlook of tightening being switched to easing. With both expected ins and outs, the total holdings of treasuries should, in theory, be unknown.
In practice, the answer is unclear. From May 2022 to January 2023, the total holdings of treasuries, as reported by the U.S. Treasury Department, went up from US$7.4 billion to US$7.5 billion, down to US$7.1 billion, then back to US$7.4 billion, an almost nil change over these eight months. During the period, the treasury yields went down, up then down again. This suggests foreign governments tend to underweight treasuries when yields rise and overweight when yields come down. This is indeed a typical fund manager herding behavior….

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