Households and Hedge Funds Flock to the Expanding Treasury Market

Increasing Appetite for Meatier Treasury Yields

The Federal Reserve's aggressive interest rate hikes over the past year-and-a-half have caught the attention of both individual investors and hedge funds. In response to these rising rates, these market participants have been drawn to the meatier yields offered by Treasuries.

According to a report by GlobalData TS Lombard, households significantly increased their purchases of U.S. Treasury securities (USTs) during the equity market selloff of 2022. Seeking safety, households became substantial buyers of USTs and continued buying throughout the Fed's hiking cycle. Notably, despite last year's bond selloff, households have accumulated approximately $1.5 trillion of Treasury debt.

A Surge in New Accounts

One indication of this growing interest is the rise in new accounts opened on TreasuryDirect, a government website that allows individuals to purchase U.S. debt. In 2022 alone, an estimated 3.6 million new accounts were created on this platform. While exact figures for this year's new accounts are currently unavailable, it is evident that the trend of individuals entering the Treasury market remains strong.

The Changing Landscape

This shift in the Treasury market landscape is noteworthy. As traditional buyers like foreign investors and the Fed have pulled back, households and hedge funds have stepped up their participation. This changing dynamic underscores the attractiveness of Treasury securities amidst a backdrop of rising interest rates.

It is crucial to monitor this ongoing trend as it shapes the contour of the Treasury market and redefines the roles played by households and hedge funds in the years ahead.

The Changing Yields on Treasury Bills and Bonds

U.S. Debt and Debt-to-GDP Ratio

Changes in Federal Reserve's Holdings

Impact on U.S. Stock Market

Related: The market ‘may be overpaying you’ on a 10-year Treasury, says Lloyd Blankfein