Canada's U.S. treasury holdings surge, may soon eclipse China's

Canada is on pace to surpass China as a top-three holder of U.S. government debt within the next few years. Canadian accounts now hold roughly US$426 billion worth of U.S. treasury securities, a more than 300 percent increase from US$106 billion in 2021, according to bond market data. Experts say part of the rise is due to Canadian investors buying more treasuries as their yields have grown. However, some analysts believe a significant portion may be linked to China moving its U.S. debt holdings into Canadian-domiciled accounts, where they are formally attributed to Canada.

Officially, Chinese holdings of U.S. treasuries have fallen about 40 percent to barely US$600 billion from more than US$1 trillion in 2021. Tiffany Wilding, an economist at Pacific Investment Management Co., said China is widely known to use intermediaries in other countries to hold treasuries. "There is a background there that could suggest China certainly could have an intermediary take a treasury position in Canada," Wilding said in an interview. It is impossible to confirm if China is the driving force because the data attributes holdings to the country where the assets are held, not the ultimate owner's country.

Doug Porter, chief economist at Bank of Montreal, said China's involvement "helps explain a lot of what is going on." He noted in a late August report that Canada was on pace to surpass China as a U.S. treasury holder. The report said Canadian holdings are set to eclipse those of Belgium and China within 18 months, at which point only Japan and Britain will hold more U.S. government debt. "China is still investing in treasuries, just through other avenues," Porter said in an interview. "I think a lot of people had long suspected that. What is interesting is that some of that is being done through Canada."

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Motivations for China to obscure its holdings could include political reasons, such as appearing to reduce U.S. holdings amid trade tensions. Chinese law also classifies plans to adjust foreign reserves as a state secret. "There is nothing nefarious here, it is just not through the traditional channels, and perhaps they don't want to be seen as holding U.S. treasuries," Porter said. Some of Canada's increase can be explained by actual Canadian investors buying more U.S. treasuries due to attractive yields compared to Canadian bonds, he added.

Derek Holt, head of capital markets economics at Bank of Nova Scotia, said he was disinclined to believe China was the root cause. He pointed to the growing yield spread between U.S. treasuries and Canadian government bonds as a more plausible explanation. The current yield for a Canadian government 10-year bond is roughly 1.25 percentage points lower than 10-year U.S. treasury notes. "I'm not saying that I dismiss the China argument that it is spreading its holdings around," Holt said. "But I wouldn't have gone there first for plausible explanations of what we've seen."

Wilding suggested another possible source could be Canada's largest pension funds, known as the Maple 8. Only two, the Ontario Teachers' Pension Plan and the Caisse de dépôt et placement du Québec, publicly disclose their U.S. treasury investments. The Caisse doubled its holdings to nearly $28 billion at the end of 2025 from roughly $14 billion at the end of 2021, while OTPP's positions have remained relatively unchanged. "The OTPP data is a reasonable bellwether for the rest of the Maple 8 system, which suggests that they were not the ones to do this," Wilding said. "We are kind of scratching our heads on who it could be."

With files from The Globe and Mail