India significantly reduced its exposure to U.S. Treasury securities in 2025, marking a notable shift in the management of its foreign exchange reserves and ending a four-year period of stable or rising investments in American government debt.
Data tracking global sovereign holdings show that India’s U.S. Treasury portfolio declined sharply over the past year, reflecting a deliberate move toward diversification amid heightened global uncertainty, evolving monetary conditions, and changing geopolitical dynamics.
As of October 2025, India’s holdings of U.S. Treasuries stood at approximately $190.7 billion, down from $241.4 billion a year earlier — a contraction of about 21%. This is the first year-on-year reduction in India’s exposure to U.S. government debt since 2021, underscoring a reassessment of traditional reserve allocation priorities.
A Strategic Shift Beyond Yields
The reduction comes despite relatively attractive yields in the U.S. bond market. Throughout the year, the benchmark 10-year U.S. Treasury yield traded between roughly 4% and 4.8%, levels that would typically sustain strong foreign central bank demand.
Economists, however, say the decision appears to be driven less by yield considerations and more by strategy.
“This points to India’s approach towards diversification and marks a shift in its forex strategy,” said Dipanwita Mazumdar, economist at Bank of Baroda. “The move suggests a conscious effort to reduce concentration risk rather than a reaction to short-term market returns.”
Analysts note that reserve managers are increasingly balancing safety and liquidity with long-term resilience, especially as the global financial environment becomes more fragmented.
Dollar Outlook and Policy Expectations
India’s lower exposure to U.S. Treasuries also coincides with a softer outlook for the U.S. dollar. The dollar index has shown signs of weakening amid cooling labour market conditions in the U.S. and expectations that the Federal Reserve may eventually pivot toward monetary easing.
“A softer dollar reduces the appeal of increasing long-duration dollar-denominated assets,” said a senior market strategist at a Mumbai-based financial institution. “For a country like India, diversification becomes a logical hedge against currency volatility.”
With U.S. interest rates expected to peak and inflation pressures easing, central banks are reassessing whether the risk-reward profile of long-term U.S. bonds remains as compelling as it was in earlier tightening cycles.
Gold and Alternatives Regain Prominence
Market participants believe that part of India’s reduced Treasury exposure is being redirected toward alternative reserve assets, including gold, non-dollar currencies, and sovereign bonds issued by other economies.
Gold, in particular, has seen renewed interest among central banks worldwide as a hedge against geopolitical risk, inflation uncertainty, and currency fluctuations.
“In the current volatile global political landscape, we may again see higher gold holdings by the RBI,” Mazumdar said. “This would align with a broader global trend where central banks are increasing their gold allocations.”
Over the past few years, gold has emerged as a stabilising asset during periods of market stress, making it an attractive complement to traditional reserve instruments.
Part of a Broader Emerging-Market Trend
India’s move reflects a wider pattern among emerging market economies, many of which are seeking to reduce over-reliance on any single reserve currency while maintaining adequate liquidity buffers.
Geopolitical tensions, sanctions risks, supply-chain disruptions, and increasing trade fragmentation have prompted central banks to rethink reserve concentration, even as the U.S. dollar retains its dominant global role.
“Reserve management today is not just about returns,” said an economist tracking global central bank flows. “It’s about resilience, flexibility, and the ability to respond to shocks.”
India’s foreign exchange reserves remain robust, giving policymakers room to recalibrate asset composition without undermining financial stability. While U.S. Treasuries are expected to remain a core component of India’s reserves, the latest data suggests a more balanced and nuanced approach going forward.
A More Calibrated Path Ahead
Experts emphasise that the reduction does not signal a retreat from U.S. assets but rather a gradual evolution in reserve management philosophy. By spreading risk across asset classes and currencies, India aims to protect its external buffers in an increasingly uncertain global environment.
“The dollar will remain central to the global financial system,” said a senior banking executive. “But India’s latest move shows it is preparing for a world where diversification is no longer optional — it’s essential.”
As global monetary cycles shift and geopolitical risks persist, India’s reserve strategy appears set to prioritise stability, flexibility, and long-term security over concentration, marking a new phase in how one of the world’s largest emerging economies manages its financial defenses.
