After U.S. debt soared to $38 trillion, the ‘easy times’ are now over as hedge funds jump into the bond market, former Treasury official warns

The holders of U.S. debt have shifted drastically over the past decade, tilting more toward profit-driven private investors and away from foreign governments that are less sensitive to prices.

That threatens to turn the U.S. financial system more fragile in times of market stress, according to Geng Ngarmboonanant, a managing director at JPMorgan and former deputy chief of staff to Treasury Secretary Janet Yellen.

Foreign governments accounted for more than 40% of Treasury holdings in the early 2010s, up from just over 10% in the mid-1990s, he wrote in a New York Times op-ed on Friday. This reliable bloc of investors allowed the U.S. to borrow vast sums at artificially low rates.

“Those easy times are over,” he warned. “Foreign governments now make up less than 15% of the overall Treasury market.”

While they didn’t dump Treasuries and still hold roughly the same amount as 15 years ago, foreign governments didn’t ratchet up their buying in line with the recent surge in U.S. debt, which now tops $38 trillion.

Private investors have stepped in to absorb the massive supply of Treasury bonds, but they are also more likely to demand higher returns, making rates more volatile...