US Treasury Bond Market Faces Supply and Demand Problem

The US Treasury bond market is facing a supply and demand problem, which could lead to financial instability.

Three recent events have drawn attention to this issue. The first was Japan's decision to sell some of its US Treasury holdings in support of the yen. This move put pressure on the currency/debt markets, prompting Treasury Secretary Scott Bessent to intervene.

The second event was a rise in US bond yields, particularly at the long end, due to dollar weakness and increased supply of debt. The third was Secretary Bessent's announcement that the Treasury would purchase US bonds, although its capacity to do so is limited.

These events are symptoms of a more serious debt problem, which has been building over time. In his book 'How Countries Go Broke: The Big Cycle', the author explains how countries accumulate debt and debt service payments that grow relative to incomes, eventually leading to financial crises.