Core Viewpoint - The UK has significantly increased its holdings of US Treasury bonds, purchasing $41.3 billion in July 2025, surpassing China to become the second-largest foreign holder of US debt, raising its total to $899.3 billion [3][5]. Group 1: UK Treasury Holdings - In July 2025, the UK increased its US Treasury holdings by $41.3 billion, reaching a record high of $899.3 billion, exceeding China's holdings of $730.7 billion [3][5]. - Japan remains the largest holder of US debt, with a total of $1.15 trillion, while Canada reduced its holdings by $57.1 billion to $381.4 billion [3]. Group 2: Reasons for Increased Purchases - The UK is betting on US Treasuries as a safe haven with high yields, especially after Brexit, where US Treasury yields over 4.5% have become attractive compared to UK bonds [5][6]. - The purchase is also seen as a move to strengthen the "special relationship" with the US, potentially to gain trade support from the Trump administration [6][7]. - Additionally, the UK is looking to transfer debt risk, as it faces £334 billion in maturing debt by 2025, signaling cooperation with the Federal Reserve to alleviate domestic financial pressures [7][8]. Group 3: Future Outlook - In the short term, the UK may be forced to "lock in" its holdings due to potential declines in US Treasury yields following Federal Reserve interest rate cuts [10]. - Long-term concerns include rising default risks on US debt, with the UK potentially becoming a "bag holder" if the US Treasury market collapses [10]. - Experts suggest that the UK is engaging in a "debt hedging game," but if US Treasuries fail, London could face significant financial repercussions [10][12].