Sharp moves in U.S. government bond yields reflect a reduced willingness by foreign governments to finance American budget deficits. Official foreign entities, including central banks, finance ministries and sovereign wealth funds, now hold about 12% of U.S. Treasury securities, down from roughly 40% during and after the financial crisis. Their holdings have remained just under $4 trillion in aggregate, but the U.S. government debt market has expanded to about $40 trillion, or roughly 120% of GDP. After a sharp selloff in long-term U.S. debt, the Treasury Department said Wednesday that it would increase buybacks, helping stabilize the market and lower yields but potentially creating new risks. Evercore ISI analysts said sustained Treasury activism could make the dollar less attractive by raising concerns about volatility and policy surprises. BNP Paribas analysts said the move responded to long-term yields reaching their pre-financial-crisis peaks while the Fed remained on hold, but they did not believe buybacks would offset a continued loss in Fed credibility. Foreign governments historically used Treasurys primarily as a safe store for trillions of dollars in cash, making them relatively insensitive to price. That behavior began changing in 2016, when China liquidated Treasury debt to defend its currency, accelerated during COVID as governments sought cash for pandemic costs, and faced additional pressure after Russia’s war on Ukraine began in 2022 and the freezing of Russian state assets prompted countries to reconsider dollar-based reserves. The shift has not involved mass dumping, but it has left more of the market with hedge funds and other investors whose priorities differ from those of government reserve managers. The Trump administration may face further clashes with a more nervous and risk-sensitive bond market.