The April Treasury International Capital (TIC) data warrant close monitoring, as foreign demand for U.S. Treasuries appears to be showing its first notable signs of softening this year. Following March’s record net inflow of $253 billion, April posted a net TIC outflow of $14.2 billion.
The decline was driven primarily by a $7.8 billion net outflow in long-term securities after adjustments, with foreign private investors selling $20.5 billion in long-dated U.S. assets and foreign official institutions reducing holdings by $30.1 billion. Notably, within Treasuries, foreign private investors sold $46.8 billion of long-term government debt, while foreign central banks provided a modest offset with $6 billion in net purchases.
Despite these outflows, overall foreign Treasury holdings remain near record highs, totaling $9.01 trillion as of April—down only $36 billion from the March peak. However, more timely New York Fed custodial data point to a sharper $90 billion decline since March, largely reflecting official sector selling. This growing divergence between headline holdings and flow dynamics suggests increasing underlying tension in foreign sponsorship of U.S. government debt.
Several factors likely contributed to April’s pullback. Renewed trade policy tensions, including the latest tariff announcements, generated fresh volatility that prompted foreign private investors to reduce Treasury exposure. This selling marks the largest monthly foreign Treasury liquidation since December. More troubling is the weakening participation seen in recent long-duration Treasury auctions, where bid-to-cover ratios have fallen to multi-year lows, underscoring a broader erosion in structural demand, particularly for longer-dated maturities.
This softening foreign demand carries several market implications. Liquidity depth is thinning as the reduction in foreign participation—especially from price-insensitive official buyers—makes secondary market conditions increasingly fragile during periods of stress. With fewer structural buyers, the risk of term premium expansion is rising, particularly on the long end of the curve, as heavy issuance continues and auction absorption increasingly depends on domestic investors.
Unlike prior episodes of market stress, policy flexibility may also be more constrained. Elevated inflation limits the Federal Reserve’s capacity to respond quickly with liquidity support, leaving the market more exposed to disorderly moves in the event of renewed shocks. In parallel, fiscal concerns are gaining prominence among both domestic and foreign investors, as large and persistent deficits, combined with expanding net issuance, elevate sensitivity to fiscal headlines and Treasury market stability.
Given these dynamics, market participants are likely to maintain a defensive stance within long-duration Treasuries, adopting selective positioning across the curve. Close monitoring of upcoming TIC releases, custodial flows, and auction metrics will be critical in gauging whether foreign retrenchment becomes a more sustained headwind through the second half of 2025. While core fixed income remains a key ballast within multi-asset portfolios, the margin for error in supply-demand balance is narrowing—and the risk of more volatile Treasury markets is rising accordingly.
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