Whalesbook
India has sharply reduced its holdings of U.S. Treasury notes, shedding 21 percent of its investments between October 31, 2024, and October 31, 2025. This drawdown, valued at approximately $50.7 billion, brought India's total holdings to $190.7 billion, marking the first annual decline in four years.
Strategic Reserve Reallocation
The move deviates from a trend of increasing or stable holdings observed over the preceding four years. Despite the benchmark 10-year U.S. Treasury yielding between 4.0% and 4.8% during the period, economists suggest the reduction was driven by strategic reserve allocation rather than yield considerations. Dipanwita Mazumdar, Economist at Bank of Baroda, noted this indicates "India's approach towards diversification and marks a shift in its forex strategy."
Diversification Beyond Dollar
This strategic shift also points to a reduced dependence on the U.S. dollar. Factors contributing to this include a softer dollar outlook and anticipated interest rate cuts by the U.S. Federal Reserve. Rising geopolitical risks and trade fragmentation have prompted central banks, including India's Reserve Bank of India (RBI), to reassess their reserve compositions. Market participants believe India is reallocating funds into gold, other sovereign bonds, and non-dollar denominated assets.
Gold's Resurgent Role
Gold has re-emerged as a favored reserve asset globally, serving as a hedge against currency volatility, inflation, and geopolitical shocks. Mazumdar added, "In the current volatile global political landscape, we may again see higher gold holdings by the RBI," aligning with a broader international trend of central banks increasing their gold reserves. This evolving strategy reflects an effort by emerging markets to balance safety, liquidity, and returns while mitigating concentration risk in dollar assets.