RBI cuts holdings in US Treasury securities: Why Trump’s tariffs could further the trend

With President Trump imposing steep tariffs on Indian imports, a pressing question arises: could Washington take further steps targeting India’s vast investments in US securities? The precedent is not far behind — after Russia’s invasion of Ukraine, the US and its allies moved swiftly to freeze Moscow’s access to its foreign reserves, according to market sources.

Analysts say that the US has the ability to freeze or restrict access to Treasury securities in exceptional cases, typically driven by geopolitical or national security concerns. Following Russia’s invasion of Ukraine, Washington and its allies blocked Moscow’s access to a significant share of its foreign reserves held overseas, including dollar- and euro-denominated assets. The episode underscored that, in extreme circumstances, the US can effectively cut off a country’s access to its Treasury holdings through the US financial system. A rare event with little precedent, but a theoretical possibility.

The RBI’s own data does reflect a moderation of sorts. India’s overall holdings in global securities and T-bills fell to $485.35 billion in March 2025, from $515.24 billion in September 2024, leading to a decline in overall foreign currency assets to $ 567.55 billion. The RBI is yet to publish data as of August 2025.

Sharp rise in gold reserves

At the same time, the central bank has adjusted its gold reserves. RBI data shows that gold held abroad declined to 348.62 tonnes in March 2025, compared with 387.26 tonnes a year earlier. Domestically, the RBI held 511.99 tonnes in March 2025, a sharp rise from 408.10 tonnes in March 2024. This rebalancing highlights the RBI’s dual approach of diversifying assets while maintaining sufficient liquidity.

India’s forex reserves jumped by $3.51 billion to $694.23 billion for the week ended August 29.

Central banks and sovereign wealth funds invest significantly in US Treasury securities, viewing them as among the world’s safest and most liquid assets. Backed by the US government, Treasuries form part of the largest and most active bond market globally.

Key investors in US Treasury securities

Japan is the largest investor in US Treasury securities at $1,147 billion, followed by the UK at $858.1 billion and China at $756.4 billion, as per US Treasury Department’s TIC data. The yield on the US 10-year Treasury note is holding steady at approximately 4.10 per cent, having paused a recent decline as markets await upcoming inflation reports.

China which held around $1.3 trillion of US treasury securities has gradually reduced the holding to the $756 billion level over the last couple of years.

The RBI’s foreign exchange reserve management continues to prioritise safety, liquidity, and return—in that order. Investments in T-bills and government bonds represent the debt obligations of highly rated sovereigns, central banks, and supranational institutions.

Treasury securities are particularly attractive because of their depth and liquidity. As the RBI itself notes, these instruments can often be liquidated in large volumes without causing sharp price distortions in the market, making them ideal vehicles for managing reserves.

While the US remains the largest destination for India’s reserve investments, the RBI also holds high-rated government securities from countries such as Japan, Germany, France, and the UK. Additionally, a portion of reserves is parked in bonds issued by multilateral institutions like the World Bank, the International Monetary Fund (IMF), and the Asian Development Bank (ADB).

Other allocations include deposits with central banks and the Bank for International Settlements (BIS), alongside physical gold. This broad diversification ensures that India’s reserves are not overly dependent on one asset class or geography.

With foreign exchange reserves touching new highs in 2025, the RBI’s calibrated reduction in US T-bills and realignment of gold holdings reflects its cautious approach amid global financial uncertainty. By spreading investments across sovereign debt, supranational bonds, deposits, and gold, the RBI aims to strike a balance between liquidity, security, and returns while safeguarding the nation’s financial stability.