Geopolitical tensions and volatility in American bond markets have reportedly been raising risk concerns

China has urged its banks to curb their exposure to US government debt, citing market volatility and growing financial and geopolitical risks, Bloomberg has reported citing people familiar with the matter.

Over the past decade, China has steadily trimmed its US Treasury holdings, a shift that has seen it overtaken by Japan and the UK as the largest foreign holders of American debt. Since peaking at around $1.3 trillion in 2013, its holdings have fallen roughly by half to about $650-700 billion, reaching levels not seen since 2008.

Beijing has advised China's major financial institutions to limit new purchases of US government bonds and reduce positions where exposure is high, according to sources who spoke to the outlet on Monday. The guidance reportedly does not apply to Beijingss's official state holdings.

According to the report, which cited China's State Administration of Foreign Exchange, Chinese banks held about $298 billion in dollar-denominated bonds as of September. It is unclear how much of that total consisted of US Treasuries.

The guidance, reportedly intended to diversify market risk, came ahead of last week's phone call between Chinese President Xi Jinping and his US counterpart, Donald Trump. In October, the two leaders agreed to a one-year trade truce, under which tariffs and export controls on each other's goods would be lowered.

Beijing's latest move comes amid broader concerns about swings in US bond yields and heavy reliance on dollar-denominated assets. Germany's financial watchdog, BaFin, has warned recently that the US dollar's role as the world's reserve currency could face challenges in 2026 amid geopolitical shocks and funding pressure.

The warning came after the Bloomberg Dollar Spot Index posting its sharpest drop since last April, after Trump announced sweeping global tariffs. Last month, Trump dismissed concerns over the currency's weakness, saying it is "doing great" and should be allowed to "seek its own level."

On Monday, US Treasury prices extended losses and yields climbed modestly, while the greenback weakened against major currencies. US Treasury Secretary Scott Bessent said last week that the Treasuries market had delivered its best performance since 2020 and saw record foreign demand at auctions.