Treasury holdings at financial institutions are surging:

Primary dealer holdings of US government securities are up to a record $482 billion.

Primary dealers are large financial institutions, including banks, authorized to trade directly with the Fed, and are required to participate in Treasury auctions.

These dealers provide liquidity by buying and selling US Treasuries and Mortgage-Backed Securities (MBS) and act as primary counterparties in the Fed’s market operations.

Since June 2022, primary dealer holdings have surged +$400 billion.

This comes as the Fed implemented QT, effectively decreasing its balance sheet until December 2025.

At the same time, rapidly growing US debt has increased Treasury supply while demand has dropped, forcing primary dealers to fill the gap.

US treasury market dysfunction is rising.