India to cut US Treasury holdings by 21% in 2025, prompts reserve diversification

India’s holdings in US Treasury securities fell sharply in 2025, falling by nearly 21% in the year to October 31, the first annual decline in four years, according to Moneycontrol.

Data compiled from Bloomberg showed that India’s stock of US government bonds by the end of October 2025 declined to about $190.7 billion from $241.4 billion at the same time last year, reflecting a significant reduction in exposure to long-term US debt.

The decline came even as US bond yields remained attractive. 10-year Treasury yields moved between 4% and 4.8% during this period, typically a range that supports foreign inflows.

Economists say the decline in treasury holdings reflects India’s strategic rebalancing of foreign exchange reserves rather than being driven solely by returns on US bonds. The move is in line with broader efforts to diversify reserve assets amid emerging global economic and geopolitical uncertainties.

Dipanvita Majumdar, economist at Bank of Baroda, told Moneycontrol that the cut signals India’s intention to reduce dependence on dollar-denominated securities at a time when the US dollar index (DXY) has shown signs of a softening trend. “This points to India’s approach towards diversification and marks a shift in its foreign exchange strategy,” he said.

The weak dollar outlook and expectations of an eventual US Federal Reserve rate cut may reduce the attractiveness of long-term dollar assets. Meanwhile, rising geopolitical risks and fragmentation in global trade and finance have prompted central banks, including the RBI, to review their reserve allocations.

According to Moneycontrol, market participants believe gold is again finding support as India shifts some of its reserves towards gold, non-dollar currencies and other sovereign bonds as a hedge against currency fluctuations, inflation and geopolitical uncertainty.

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“In the current volatile global political scenario, we may again see higher gold holdings by the RBI,” Majumdar said, adding that such a move would be in line with the broader global trend of central banks increasing their gold reserves.

India’s changing reserve strategy reflects a broader shift among emerging markets towards balancing safety, liquidity and returns, as well as reducing excessive reliance on dollar assets. Even though the US dollar remains the dominant reserve currency, analysts say India’s actions indicate a more measured and diversified approach to reserve management.

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