US treasuries: why it’s buy, buy, buy for the UAE as Saudi sells

• US treasuries seen as safe
• UAE invests its surplus
• Saudi Arabia running a deficit

Saudi Arabia and the UAE are following divergent investment strategies around US government bonds, which have long been a safe haven for sovereign and institutional investors worldwide.

The two countries are among the world’s top 20 biggest holders of the bonds, with a combined value of almost $250 billion.

The UAE acquired almost $43 billion of bonds, which are also known as US treasuries, in the first two months of the year, the most recent US government data shows. 

Many countries with excess dollars, through trade surpluses with the US or the sale of dollar-denominated goods such as oil, buy vast amounts of the bonds.

The UAE increased its total treasury holdings to a record of almost $120 billion at the end of February, up from $77 billion on December 31, making it the 19th largest international holder of US treasuries.

“The UAE runs surpluses, so has more cash coming in that needs to be parked somewhere temporarily and will probably be converted into other investments at some point,” says Steffen Hertog, associate professor at The London School of Economics and Political Science.

The UAE purchasing spree ran counter to market trends, as President Donald Trump’s contentious and often contradictory trade and economic policies began to erode confidence in US sovereign debt and dollar-denominated assets more generally. 

That came into sharper focus last month with his on-again off-again position around US taxes on imports. Trump is visiting the UAE and Saudi Arabia, as well as Qatar, next week on his first state visit since becoming president.

Sliding dollar

The dollar index, which measures the greenback against a basket of other major currencies, slid to a three-year low in April and is down 8 percent in the year to date.

That decline makes dollar-denominated assets such as the UAE’s US treasury investments worth less relative to other currencies.

This month the yield on 10-year treasuries, against which many other bonds are benchmarked, has increased 0.1 percentage points to 4.3 percent. That is slightly above the actual coupon, or interest rate, of 4.25 percent. 

Yields and bond prices are inversely correlated, so a rising yield means the price is falling and therefore indicates selling pressure.

Saudi Arabia was a contributor to that, having offloaded a little over $11 billion of treasuries in the first two months of the year. 

It reduced its holdings to around $126 billion, down from a 2024 peak in September of almost $144 billion. The kingdom is the 17th largest international holder of US sovereign debt.

“Saudi Arabia’s recent sale of US treasuries is likely part of a portfolio rebalancing,” says Ellen R Wald, author of Saudi, Inc and president of Transversal Consulting.

“Saudi Arabia may be shifting some of its portfolio assets away from stable but lower-yielding investments to riskier, but potentially higher-yielding investments as oil prices have trended lower.”

Wald says Saudi Arabia’s declining treasury holdings, which have fallen by one-third from a peak of $184.4 billion in February 2020, are not a reflection of the country’s relationship with the US.

“The UAE may have different considerations for its portfolio as its sources of income are significantly more diversified than Saudi Arabia’s,” says Wald. “I don’t see this change as signifying anything about US-Saudi relations versus US-UAE relations.” 

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Unlike the UAE, Saudi Arabia has a current account deficit and so has no surplus to reinvest, says Hertog. 

Inflows of dollars into the Saudi central bank fluctuate depending on when the national oil company Saudi Aramco pays dividends and when the country takes on international debt.

“This can lead to additional liquidity that is put into highly liquid instruments temporarily like treasuries but then often invested into higher-yielding instruments later,” says Hertog.

“Some Saudi treasury holdings might also not show up in the statistics because they are held via third party fund managers.”

The kingdom is likely to always hold a minimum level of treasuries as it needs liquid instruments to finance balance-of-payment transactions and, in an extreme case, to defend its long-time currency peg to the dollar, Hertog says.

For countries outside the top 20 international holders of US treasuries, the most recent data is to December 31. 

This shows that Kuwait owns a little more than $50 billion of treasuries. Although this was marginally down in October, Kuwait has nonetheless generally been increasing its holdings from a low of just under $40 billion in October 2023.