Households and hedge funds have been finding common ground in the roughly $25 trillion Treasury market as yields on short-term bills and longer-dated bonds reclaim some of their highest levels of the past two decades.
Meatier Treasury yields have been attracting both individual investors and hedge funds as the Federal Reserve has sharply raised interest rates in the past year and a half.
This chart shows their ballooning share of Treasury purchases since January 2022, a period that’s seen the Fed, foreign buyers and others stepping back.
“During the 2022 selloff in equities, households fled to safety and became large buyers of USTs,” a GlobalData TS Lombard macro strategy team led by Skylar Montgomery Koning and Andrea Cicione wrote, in a Wednesday client note. UST is shorthand for U.S. Treasury securities.
“Moreover, they have continued to buy throughout the Fed’s hiking cycle,” the team wrote, noting that despite the large selloff in bonds since last year, households have purchased a total of about $1.5 trillion of Treasury debt.
As part of the push into Treasurys, people opened an estimated 3.6 million new accounts last year on TreasuryDirect, a longstanding government website for individuals to buy U.S. debt. The Treasury didn’t immediately respond to a request for a fresh figure on new accounts for this year.
Yields on three-month Treasury bills
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were near 5.48% on Wednesday, up from about 0.3% in March 2022 when the Fed fired off its first interest rate hike in four years. It was last regularly trading at 5.5% in 2001, according to FactSet.
The 10-year yield
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was nearing 4.62% Wednesday, up from about 1.84% since the hiking cycle began, reclaiming highs last regularly seen in 2007.
The COVID crisis has helped pushed U.S. debt to about $33 trillion, while a gauge of the nation’s ability to pay its debts versus what it produces climbed to almost 100% this year, up from a roughly 79% debt-to-GDP ratio in 2019, according to the strategists.
Meanwhile, the Federal Reserve’s share of the Treasury market has retreated to about 19.8%, down from 23.4% before the central bank in 2022 began raising interest rates and letting bonds roll off its balance sheet in a bid to fight high inflation in 2022.
U.S. stocks have sold off sharply in September, with volatility spiking since last week when the Fed signaled it expects to hold its policy rate higher for longer as part of its inflation fight. The Dow Jones Industrial Average
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was on pace for a 3.9% monthly drop through Wednesday, the S&P 500 index
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5.8% lower and the Nasdaq Composite Index
COMP
was off 7.4%, according to FactSet.
Related: The market ‘may be overpaying you’ on a 10-year Treasury, says Lloyd Blankfein
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