China May Be Secretly Buying US Debt Through Canadian Banks
Ottawa, Thursday, 15 October 2026.
Wall Street analysts suspect China is routing $600 billion in US debt through Canadian accounts, masking its massive dollar investments while publicly projecting economic decoupling from the United States.
Surge in Canadian Holdings Sparks Market Speculation
Financial analysts and market strategists are intensifying scrutiny over United States Treasury data following reports that Canada’s holdings of US debt have surged to nearly $600 billion [1][2]. This accumulation represents a significant increase, with data indicating Canada’s position in US Treasuries and bonds backed by federal housing agencies has more than quadrupled over the past five years [4][5]. The timing coincides with ongoing trade tensions and tariff disputes between the US and China, leading investors to suspect that Beijing may be utilizing Canadian intermediaries to maintain exposure to US interest rates while masking its actual footprint [1][3]. Official US Treasury data tracks the location of custody rather than the ultimate beneficial owner, creating a systemic reporting loophole that allows large official holders to obscure their actual debt positions by using third-party clearing houses or banks [1][5].
While official data shows a decline in China’s reported Treasury ownership, market analysts suggest this reflects a strategic shift of assets to non-US jurisdictions to create the appearance of economic decoupling, rather than an actual reduction in holdings [1][6]. China’s officially reported holdings of US Treasuries stand at $618 billion, a decrease of roughly 50% since 2016, even as Canada’s reported holdings of US mortgage-backed securities have surged to approximately $162 billion from roughly $21 billion in mid-2021 [3][6]. This specific segment of mortgage bonds has seen a calculated increase of 671.429 percent, a market segment traditionally dominated by Japan, Taiwan, and China [6][8]. Vitaliy Liberman, a mortgage-debt specialist at DoubleLine, noted that Wall Street contacts pointed to China as the possible explanation for Canada’s surging holdings, stating, ‘The smartest people on the Street said, It’s not Canada. It’s the other Canada’ [5][7].
Mechanisms of Custodial Routing and Data Loopholes
The core of the speculation lies in the methodology used by the US Treasury to record foreign holdings, which relies on the country where securities are held in custody rather than the ultimate owner [1][5]. This distinction complicates the verification of actual ownership for large official holders, allowing countries to obscure their actual debt positions by using third-party clearing houses or banks [1]. Analysts and investors suspect China is masking its true US Treasury holdings by routing securities through custodian banks in Canada, potentially misrepresenting the actual foreign demand for US debt [1][2]. A genuine reduction in Chinese demand for US government debt could strain US borrowing capacity, whereas hidden holdings would imply continued stability in demand despite headline declines [5].
Market participants are advised to monitor US debt auction metrics, specifically indirect bidder demand, as a proxy to cross-reference against official custody data for discrepancies that would validate the theory of hidden Chinese purchasing [1]. Bloomberg reported on the surge in Canadian holdings of US debt on October 14, 2026, fueling speculation regarding China’s potential ‘backdoor’ bond-buying activities [3]. Some investors and analysts believe that the decline in China’s reported holdings reflects a shift to accounts in other countries, rather than actually reducing them, in order to give the appearance of decoupling from the United States [1][5]. However, claims remain unconfirmed, as Chinese authorities, Canada’s Office of the Superintendent of Financial Institutions, and the US Treasury Department all declined to comment on the allegations [3][6].
Market Reactions and Economic Implications
Following the release of reports regarding the potential routing of holdings, yields on 10-year US Treasuries dropped 1.7% to near 5.1%, the lowest level seen in almost three weeks [2]. This movement suggests that if major holders like China are indeed maintaining or increasing exposure through intermediaries, the risk of a sudden dump of US debt is lower than official headlines suggest [5]. China maintains a massive trade surplus exceeding $1 trillion and keeps the composition of its overseas assets strictly confidential, leaving no direct evidence confirming the link between the surge in Canadian holdings and Chinese state-directed investment strategies [6][8]. Experts note that China is reinvesting rather than divesting from dollar-denominated assets to avoid strengthening the yuan and incurring mark-to-market losses on its portfolio [8].
Geopolitical factors also play a critical role, as In 2022, the US and allies froze approximately US$300 billion in Russian assets held abroad, highlighting the risk of currency ‘weaponization’ during geopolitical conflicts [5][7]. Last year, in 2025, People’s Bank of China Governor Pan Gongsheng criticized the dollar-based global financial system, citing these risks, yet the data suggests continued reliance on the system [5][7]. Analysts, specifically Garcia-Herrero of Natixis, express skepticism regarding official US data suggesting a sharp decline in Chinese Treasury holdings over the past decade, suspecting instead that significant amounts have been rerouted through Canada to obscure ownership [5][7]. If China is running such a massive trade surplus, it cannot reduce its US Treasury holdings at that pace, representing an enormous amount of capital that must be deployed [6][8].
Verification Challenges and Future Outlook
Market participants are monitoring upcoming monthly US Treasury reports on foreign holdings for anomalous custodial center activity and official responses from Chinese or Canadian authorities [1]. Alex Etra, a senior macro strategist at Vanda Research, cautioned, ‘I’m not quite comfortable saying clearly this is all China,’ highlighting the difficulty in distinguishing between state-directed activity and private Canadian investment [3][6]. Brad Setser, a senior fellow at the Council on Foreign Relations and former US Treasury official, noted that China has become far more adept at hiding dollars than at de-dollarizing, suggesting China is not moving away from dollars or dollar-denominated bonds [6][8].
The next data release window is pending, with analysts waiting for the next monthly US Treasury reports to check for custodial center activity [1]. While the theory is compelling given the trade surplus data and custody loopholes, direct evidence linking the surge to China remains elusive [6][8]. As of October 15, 2026, the situation remains a subject of intense speculation among fixed-income investors and market strategists who are watching for further discrepancies in custody data [1][2]. The outcome of this scrutiny could significantly impact perceptions of US borrowing capacity and the stability of demand for US sovereign debt in a period of heightened geopolitical tension [5][7].