Canada moves closer to overtaking China as major holder of U.S. debt

ASM, Philippine Canadian Inquirer
October 18, 2026

Photo courtesy: The Globe and Mail

OTTAWA, Canada — Canada is emerging as one of the largest foreign holders of U.S. government debt, with growing investments in American Treasury securities putting the country on a path that could see it surpass China in the coming years.

A report published on October 17 suggests Canada could become one of the three largest foreign holders of U.S. Treasury securities before 2028, reflecting a significant shift in how international investors hold American government debt.

The latest figures from the U.S. Department of the Treasury, released on October 16, show that Canadian-held Treasury securities reached US$464.6 billion in August 2026, up from US$426.3 billion in July.

China, meanwhile, held US$590.7 billion in August, down from US$618 billion the previous month. The gap between the two countries stood at approximately US$126.1 billion.

Canada climbs among America’s biggest creditors

Japan and the United Kingdom remained the two largest foreign holders of U.S. Treasury securities in August, with US$1.068 trillion and US$1.010 trillion, respectively.

China ranked third, followed by Belgium and Canada.

Canada’s position reflects substantial growth in U.S. government securities held through Canadian accounts. Its holdings have increased markedly since 2021, when they stood at approximately US$106 billion.

The increase has attracted attention because it comes as China’s reported holdings have declined over recent years.

However, Canada’s potential move into the top three is not guaranteed. The rankings depend on future investment activity, market movements and changes in holdings across several countries.

Why investors are buying U.S. government debt

U.S. Treasury securities are financial instruments issued by the American government to borrow money. Investors purchase these securities in exchange for interest payments or returns at maturity.

They are widely used by central banks, pension funds, financial institutions and individual investors seeking U.S. dollar-denominated assets.

Higher Treasury yields have made these investments more attractive to some investors, particularly as borrowing costs and interest rates remain elevated.

For Canadian investors, U.S. government bonds can provide income, portfolio diversification and exposure to the American dollar.

However, higher yields can also reflect market concerns about inflation, interest rates and government borrowing. Bond prices may decline when yields rise, meaning Treasury investments are not entirely free from financial risk.

Are China’s investments moving through Canada?

One important detail behind Canada’s growing holdings is that the figures do not necessarily represent investments made exclusively by Canadian citizens or institutions.

U.S. Treasury data classify foreign holdings partly according to where securities are held in custody, rather than identifying every investor’s ultimate nationality.

This means foreign investors, including those based outside Canada, can hold American government debt through Canadian financial accounts.

Some market observers have raised the possibility that Chinese investors may be using intermediaries in Canada to maintain exposure to U.S. Treasury securities.

However, there is no conclusive public evidence establishing how much, if any, of Canada’s reported holdings is beneficially owned by Chinese entities.

The U.S. Treasury itself cautions that its data cannot always identify the true owners of securities held through foreign custodians.

What this means for Canada and the United States

The growing volume of Treasury securities attributed to Canada illustrates the close financial connections between the two neighboring economies.

Canada and the United States already maintain extensive trade, investment and banking relationships. American government bonds are among the financial assets used by institutions operating across both markets.

For the United States, continued international demand for Treasury securities helps finance federal government borrowing.

For Canadian investors, these holdings can provide investment income and exposure to one of the world’s largest bond markets.

However, rising Canadian holdings should not be interpreted as the Canadian government directly lending hundreds of billions of dollars to Washington. The figures encompass securities held through Canadian accounts by a range of public and private investors.

The distinction is important when assessing how much financial influence Canada’s reported position actually represents.

A changing global investment landscape

Canada’s rise comes as the composition of foreign investment in American debt continues to evolve.

China’s declining reported holdings have attracted attention, particularly amid longstanding economic and trade disagreements with Washington. Yet movements in Treasury holdings can reflect several factors, including investment diversification, market conditions and custody arrangements.

With Canada currently fifth in the U.S. Treasury rankings, surpassing China would represent a notable shift in the geographic distribution of American government debt.

Whether that happens before 2028 remains uncertain.

The next U.S. Treasury International Capital report, covering September 2026, is scheduled for release on November 18. It will provide another indication of whether Canada’s holdings are continuing to grow while China’s decline persists.