Like many on Wall Street, DoubleLine’s Vitaliy Liberman has made a habit out of keeping tabs on foreign ownership of US debt securities, looking for signs of any broad-based pullback in retaliation for Donald Trump’s zero-sum trade policies. Month after month, he noticed something peculiar.

As he combed through the list of foreign creditors, Liberman was struck by just how aggressively Canada’s stockpile had grown, despite a widespread boycott of US goods in a tit-for-tat tariff war. In fact, all told, the country quietly amassed nearly $600 billion of Treasuries and bonds backed by federal housing agencies, more than quadrupling its position in just five years.

Puzzled, Liberman — a mortgage-debt specialist — started asking around. The answer, to his surprise, was always the same. “The smartest people on the Street said, ‘It’s not Canada. It’s the Canada,’” he said. And by “the Canada,” he explained, they meant China.

By the official US count, China has steadily culled its Treasuries since Trump began lambasting the country during his first run for the White House in 2016, paring its holdings in half to $618 billion. Its reported ownership of federally backed mortgage bonds has also sunk by nearly 50% since the start of 2024, the year Trump was reelected.

That pullback, by one of the biggest US creditors, has been a perennial worry in the bond market, where talk of a so-called Sell America trade has flared periodically over the past two years.

The inflation shock of the Iran war has increased the pressure on the bond market over the past seven months, helping drive the US government’s long-term borrowing costs to the highest in nearly a quarter century. So, too, have worries about the world’s willingness to keep absorbing the ever-increasing supply of debt the US sells each year to cover its $2 trillion deficit.

But several investors, analysts and Wall Street strategists say the Canadian tally points to a tactic that has thrown off the Treasury Department’s figures — and masked how crucial a role China continues to play in financing America’s widening deficits.

Far from dumping its securities, they say, Chinese officials have instead just been moving them to non-US custodian banks in other countries, meaning they wouldn’t beed to China in the Treasury data. And that, the theory goes, has resulted in unusual jumps in holdings elsewhere. What’s more, it’s also had the benefit of giving Beijing the appearance of shutting off its flow of dollars back to the US, flexing its financial might as it seeks to challenge the dollar-based system that’s dominated global trade since the end of World War II.

Beijing has long kept the composition of its overseas assets a closely guarded secret. Moreover, there’s no direct evidence linking the jump in Canada’s holdings to banks there working on China’s behalf. China’s State Administration of Foreign Exchange declined to comment, while Canada’s Office of the Superintendent of Financial Institutions said it doesn’t comment on the client activity of those it oversees. The US Treasury Department didn’t respond to a request for comment.

Speculation that China has been shifting its portfolio around the world to mask its true origin has percolated in markets for over a decade. The chatter first started in 2014 after Belgium’s reported Treasury holdings surged over 40% in just five months, turning it into one of the biggest holders of the securities. Then, as now, China was widely seen as the reason.

But the speculation underscores a Trump-era dilemma: As eager as many countries are to unseat the dollar from its role at the heart of the global financial system, no other currency has been able to rival its use in international trade. When countries pull in more dollars than they need, local financial institutions and central banks typically invest them in US Treasuries.

“The story here is that China has been much better at hiding its dollars than it’s been about getting out of the dollar,” said Brad Setser, a former US Treasury official who has long tracked the department’s data and written extensively on the topic. In many ways, China has become a hostage to its own success.

The country’s transformation into the world’s manufacturing powerhouse and its second-largest economy left its booming export businesses awash in dollars. For years, this created a mutually beneficial feedback loop. Those US-bound exports turbocharged the economy, while the dollars it recycled into Treasuries helped hold down American interest rates.

Yet with a trade surplus of over $1 trillion with the rest of the world, China has few other places it can easily park its dollars. Dumping them would risk pushing up the value of its own currency, the yuan, and making its own exports more expensive. Selling the Treasuries it owns would likely drive down the value of its portfolio by flooding the market with bonds.

“These holdings remain a significant liability for Beijing,” said Alicia Garcia-Herrero, chief economist for Asia Pacific at Natixis. “Large-scale sales would crystallize mark-to-market losses on the remaining portfolio, push the yuan higher, and leave China with the problem of where to park the dollars.”There’s no obvious reason why China would have shifted more of its holdings to banks in Canada, even if both countries have been at loggerheads with the Trump administration. The two have also clashed periodically in the past, including over Canada’s decision to arrest Huawei Technologies executive Meng Wanzhou in 2018.

But many analysts see China’s hand as the likely reason for the sharp jump in the country’s reported holdings. The spike in the amount of US-backed mortgage securities in Canada — from about $21 billion in mid-2021 to around $162 billion — has drawn particular attention because it’s a smaller market with fewer big players. Historically, Japan, Taiwan and China were by far the largest foreign holders.

A dozen mortgage investors and strategists interviewed by Bloomberg said they have neither seen nor heard of Canadian investors buying US agency mortgage-backed securities in significant amounts. Some of the country’s largest financial institutions said they haven’t been active buyers, either.

“Canadian mortgage buying has not been a topic of conversation,” said Nick Travaglino, head of securitized credit at Nuveen Asset Management.

Not everyone is convinced that China explains all of Canada’s uptick. Alex Etra, a senior macro strategist at Vanda Research, said it could reflect relative-value trades by the country’s hedge funds, which buy cash Treasuries and agency securities while hedging them with futures.

“I’m not quite comfortable saying clearly this is all China,” said Etra, a former New York Fed economist. “We’re all sort of groping at the elephant and dealing with different pieces of it, but nobody has a picture essentially.”Nevertheless, for China, obscuring the location of its US assets could carry political and strategic advantages, particularly by giving the impression that it’s decoupling from the US. In a speech last year, People’s Bank of China Governor Pan Gongsheng made a thinly veiled criticism of the dollar-based global financial system, warning that a dominant currency tends to be “weaponized” during geopolitical conflicts.

The US and its allies froze roughly $300 billion of Russia’s assets held abroad in 2022. Treasury Secretary Scott Bessent in August threatened to cut entities off of the US dollar system for working with Iran. The actions have been fairly limited so far, but the prospect drew a rebuke from China, a major buyer of Iranian oil.

Yet, like other countries, China has few easy alternatives. For that reason, Natixis’s Garcia-Herrero said she has long been skeptical of the US data showing that China’s holdings have fallen sharply over the past decade. Like others, she suspects a good bit of it has just been moved to Canada.

“If you have that huge trade surplus, you cannot reduce US Treasury holdings at that speed,” she said. “These are big chunks of money.”