Treasury Market Faces Supply Squeeze as New Buyers Replace Fed and Foreigners

Foreign governments, US commercial banks, and the Federal Reserve are increasingly absent as steady Treasury bond buyers.

In their place, hedge funds, mutual funds, insurers and pensions are piling into Treasuries, likely demanding higher yields.

This new buyer base may add volatility and spur further losses in Treasuries, impacting borrowing costs economy-wide.

With debt sales surging amid swollen deficits, the changing demand dynamics come at an inopportune time.

The Fed's quantitative tightening is also reducing its role in the Treasury market just as supply pressures mount.