Barclays: The structure of U.S. Treasury buyers has changed, with the share of private investors rising to 73%. Long-term bond yields may face structural upward pressure.

As U.S. long-term Treasury yields remain at their highest levels in decades, Barclays believes that in addition to inflation, fiscal deficits, and increased Treasury supply, a deeper change in the U.S. Treasury market is driving up long-term financing costs. The structure of Treasury buyers has clearly shifted from official institutions such as the Federal Reserve and foreign central banks to mutual funds, households, and other private investors who place a greater emphasis on investment returns. In their latest report, Barclays strategists Demi Hu and Anshul Pradan pointed out that private investors currently hold about 73% of the U.S. Treasury market, a significant increase from approximately 50% a decade ago. Because these investors are more sensitive to price and expected yields, in an environment of persistently high inflation, they may demand higher yield compensation to absorb the increasing supply of long-term U.S. Treasuries. With official demand continuing to decline, private investors have become the primary buyers of new Treasury supply. Barclays noted, "The buyer base for U.S. Treasuries has changed." Since the Federal Reserve began reducing its balance sheet in 2022, the Feds own demand for Treasuries has decreased, and demand from official institutions like foreign central banks has also gradually weakened, making private investors the marginal buyers absorbing new Treasury supply. According to Barclays estimates, private investors currently hold about 73% of U.S. Treasuries, compared to around 50% ten years ago. Their demand elasticity metric, weighted by different investor positions, shows that over the past decade, the U.S. Treasury market has become significantly more dependent on price-sensitive investors. This distinction is particularly important for long-term yields. Unlike official institutions that buy Treasuries for purposes such as monetary policy and foreign exchange reserve management, mutual funds, foreign private investors, banks, and households are more focused on expected investment returns when allocating assets. As a result, once these investors become the main force absorbing new Treasury supply, the U.S. Treasury may need to offer higher yields to attract enough funds to absorb the bond issuance. The 30-year Treasury yield has remained above 5% for an extended period, marking the longest streak since 2007. This structural change comes amid significant pressure on the U.S. long-term Treasury market. Data shows that since the 30-year Treasury yield surpassed 5% earlier this year, it has remained above 5% for 41 consecutive trading days as of Tuesday, setting a record longest streak since 2007. The previous longest continuous period that year lasted for 50 trading days. On Tuesday, the 30-year Treasury yield was around 5.23%, having previously approached a decades-high of nearly 5.28%. Long-term Treasury prices have also faced persistent pressure this year. An index tracking U.S. Treasuries with maturities exceeding 20 years has declined by 3.8% so far this year, compared to a 4.6% increase for the full year of 2025. The market will face new tests this week, with investors awaiting the latest inflation data from the U.S. while the Treasury plans to issue $25 billion in long-term securities on Thursday, with expectations that the yield on this issue could reach its highest level since August 2001. Inflation and fiscal deficits are pushing up the term premium. In addition to changes in the buyer structure, persistent long-term inflation and fiscal conditions in the U.S. are also increasing the compensation required by investors holding long-term Treasuries. Over the past five years, U.S. inflation has consistently exceeded the Fed's target, while the fiscal deficit has significantly widened since the pandemic in 2020. In this environment, investors are increasingly concerned about the inflation and interest rate risks associated with holding fixed-rate Treasuries over the long term, thus demanding a higher "term premium." Barclays pointed out that as long-term Treasury yields approach decades-high levels again, the market is increasingly focused on the impact of fiscal deficits, long-term bond supply, and inflation risk premiums on long-term interest rates. This effect is particularly evident in 20-year and 30-year Treasuries. Traditional buyers of ultra-long Treasuries mainly include institutions like insurance companies and pensions that need to match liabilities stretching over decades; however, as long-term bond coupons are fixed, the risk of eroding real returns is significantly higher compared to short-term Treasuries when inflation remains elevated for an extended period. Long-term Treasuries may require higher yields to attract buyers. Barclays believes that as the share of mutual funds, households, banks, and foreign private capital in the Treasury market continues to rise, U.S. long-term Treasuries may need to provide structurally higher term premiums. In other words, even if the U.S. Treasury issues the same amount of bonds, in a case where buyers are more focused on price and returns, the market may require a greater price discounti.e., higher yieldsto attract sufficient demand to complete the issuance. Barclays stated that as the Treasury market increasingly relies on price-sensitive private investors, "the same amount of Treasury supply may require greater yield concessions to be absorbed by the market." This means that even if the Federal Reserve adjusts short-term policy rates in the future, long-term Treasury yields may not necessarily decline in tandem. The rising share of private investors, expanding fiscal deficits, increased long-term bond supply, and ongoing inflation risks are collectively creating upward pressure on the term premium for long-term Treasuries, potentially driving it back to levels higher than those seen before the global financial crisis.