Institutional Demand for US Treasuries Remains Steady
In a recent interview, Grant Johnsey, head of Market Solutions at Northern Trust, outlined how the market for U.S. Treasury securities is evolving amid a backdrop of geopolitical tension and rising rates.
Institutional appetite shows little shift
Johnsey said the “sell America” narrative is louder in headlines than in actual order flow. “I don’t see a lot of it right now,” he told Global Finance, noting that large institutional investors still ask, “Where else are we going to put that money?”
The United States stock market still represents more than 60% of global market capitalisation, which makes it difficult for trillion-dollar allocators to find comparable alternatives. Even a sovereign wealth fund that wants to diversify cited the unique scale of U.S. tech and AI exposure as a barrier.
Redeploying massive dollar balances into non-U.S. equities poses a liquidity challenge. Johnsey said, “You’re going to have a lot of problems redeploying those massive dollars back into non-U.S.” He added that corporate bond demand remains relatively stable.
Some pension funds are signalling a shift. The Japan Government Pension Investment Fund (GPIF), which manages the world’s second-largest pool of assets, has reduced its domestic allocation from about 70% to under 50%. Johnsey noted, however, that the fund has not yet completed a large-scale move abroad.
Liquidity strains and policy response
Liquidity shortages persist, especially at the long end of the curve. Institutional buying is limited to liability-driven investors such as pension funds and to insurers that plan for 10-, 20- and 30-year horizons.
Scott Bessent, the Treasury Secretary, has responded with a buyback programme that purchases roughly $4 billion per cycle. “He is providing liquidity in the secondary market,” Johnsey said, noting that auction sizes for long-dated Treasuries range from $25 billion to $33 billion.
Hedge funds, once the marginal buyers of 2-, 5- and 7-year notes for basis trades, are now pulling back as alternative strategies become more profitable.
Historically, when long-term demand faded, the Treasury resorted to outright purchases to stabilise yields. The current approach mirrors those past interventions, but the scale is smaller because the market is still absorbing a sizable share of global capital.
Institutional interest in digital assets remains tentative. Johnsey said stablecoins total slightly under $300 billion, a modest figure, and regulatory uncertainty has kept tokenised money funds out of the mainstream.
Liquidity outlook beyond the long end
The discussion highlighted that demand for longer-dated securities remains confined to a narrow set of investors. Liability-driven participants such as pension schemes and insurers continue to match assets with future obligations, while other institutional buyers stay away from the extended maturity segment.
Emerging themes: digital assets and macro risks
On the digital-asset front, the interviewee explained that stablecoin issuance remains modest and largely confined to retail participants. Institutional interest is still nascent, hampered by the failure of recent legislation that would have clarified the regulatory framework for tokenized products.
Johnsey noted that the Treasury Secretary has been out and about saying that the U.S. will lead the world in crypto, and especially stablecoin, as a national security priority. He added that, given the fading demand in the Treasuries market and the U.S. dollar’s shifting reserve-currency status, driving demand through stablecoins pegged to and backed by the U.S. dollar is a smart policy choice.
Corporate balance sheets were described as robust, with profit margins at historical highs and leverage ratios lower than those seen during previous crisis periods. Johnsey said, “There’s a lot of financial flexibility that private corporations or private and public corporations have today.”
