Treasuries are still on demand for most buyers

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The rise in US government deficits has kept Treasury supply fears front and center for investors.

While Treasury is likely to keep auction sizes steady until mid-2025, higher deficits and the sharp rise in rates continue to raise the question of who will buy Treasuries in the coming years, TD Securities strategists note. Treasuries are getting more expensive for investors “Demand from mutual funds and ETFs, leveraged investors, pension funds, and money market funds has been strong thus far. However, levered investors face increased costs and pension fund buying may be starting to slow.

Banks, state and local accounts have also purchased a large number of Treasuries in recent years.” “Demand from foreign investors remains highly uncertain. Japanese investors have only been modest buyers of Treasuries this year due to high FX hedging costs and China has shed Treasuries on net in 2024. However, foreign investors ex-Japan and China have remained buyers.” “Supply is likely to remain a headwind for Treasuries even as already elevated yields aid demand.

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