What role did foreign official sales play in Treasury yield moves during 2024–2025?
Executive summary
Foreign official sales contributed materially to upward pressure on Treasury yields in 2024–2025 by reducing a key pool of demand at a time of large U.S. issuance and changing market expectations, but they were one of several interacting drivers — including private foreign flows, auction dynamics, and macro outlook — and quantitative estimates of their impact vary across studies and data sources [1] [2] [3] [4].
1. Foreign-official selling was visible in TIC flows and coincided with yield moves
Monthly Treasury International Capital releases show episodes in late 2024 and 2025 when foreign official institutions were net sellers — for example, net sales of $50.9 billion in December 2024 and continued net sales in some months of 2025 — even as private foreign investors were net buyers overall in several months [1] [2] [5]; those months also coincided with periods when longer-term yields rose despite Fed rate cuts, a pattern writers labeled a “reverse conundrum” [6].
2. The magnitudes reported in TIC data imply a meaningful mechanical effect on yields
Researchers and central-bank analysts who use TIC and related reconciled datasets estimate that a plausible one‑month liquidation shock by foreign holders — on the order of $100–$150 billion — could lift 10‑year yields by several dozen to roughly a hundred basis points, with a representative average estimate of about 57 basis points for a one‑standard‑deviation month‑to‑month liquidation (roughly $141 billion) reported by the Kansas City Fed and echoed in academic work [3] [7].
3. But causation is nuanced: market structure, private flows, and auctions matter too
Official selling cannot be read in isolation: private foreign purchases, domestic investor behavior, auction results and the macro outlook all interact with official flows; for instance, Treasury Borrowing Advisory Committee members noted that weak auction demand on specific dates pushed yields up, and that robust foreign allotment in other auctions helped calm markets [4]. Market commentators and some academics argue the “reverse conundrum” is overstated or explained differently — e.g., by real‑rate moves, liquidity premiums, or changing growth/inflation expectations (p1_s1; [6] referencing Klein).
4. Motivations behind sales and their persistence are contested and partly opaque
Analysts attribute foreign official sales to a mixture of currency management, portfolio reallocation, geopolitical concerns (including sanctions risk), and a desire to diversify into other stores of value such as gold; CEPR’s column emphasizes a sharp decline in official demand and a shift toward gold as a potential driver, while Reuters and central‑bank researchers point to depreciation risk and differential yields as factors that can cause central banks to pare Treasury holdings [6] [8]. Official motives are only indirectly observable in TIC flows, and custodial data have known attribution limits, so motives and ultimate holdings outside TIC coverage remain partly opaque [5] [9].
5. Quantitative uncertainty and alternative estimates mean precise attribution is elusive
Different studies and commentary produce a range of estimates: the Kansas City Fed’s synthesis points to 25–100 basis points of potential upward yield pressure for modest foreign liquidation episodes [3], while other back‑of‑the‑envelope calculations (and country‑level estimates) suggest smaller long‑run effects — for example, a cited estimate that a 1 percentage‑point fall in a major reserve holder’s dollar share could yield roughly a 20 bps rise over the long run [10]. Methodological differences (choice of dataset, horizon, and whether one isolates official versus private flows) and TIC’s measurement limitations mean that any single number should be treated as an approximate gauge, not a definitive causal dial [3] [5] [9].
6. Bottom line: foreign official sales were an important amplifier but not the sole driver
The evidence in TIC releases and in Fed/academic work supports the conclusion that official sales materially amplified yield moves in 2024–2025 by shrinking a large, patient buyer base during a period of heavy issuance and shifting expectations, but interaction with private flows, auction mechanics, and macro fundamentals — and substantial econometric uncertainty — means they were a significant contributing factor rather than the lone or deterministic cause of higher long‑term yields [1] [2] [3] [4] [6].