The U.S. Treasury market is showing signs of extreme inertia, with trading volumes declining to historic lows despite record issuance of debt. This disconnect between supply and liquidity signals growing structural challenges in the world’s largest debt market.
- Daily turnover in the 10-year Treasury note fell below $50 billion in January 2026
- Total U.S. Treasury debt reached $34.7 trillion, a $1.2 trillion increase from 2025
- Bid-ask spreads on the 10-year note widened by 18 basis points since 2020
- Foreign holdings of U.S. Treasuries declined to 14% of total outstanding debt
- 10-year yield climbed to 4.92% in January 2026, up from 3.81% in January 2025
- Primary dealer inventory levels remain constrained due to regulatory pressures
Recent data reveals that daily turnover in the benchmark 10-year U.S. Treasury note has dropped below $50 billion—a level not seen since the early 2000s. This represents a decline of over 40% compared to the average daily volume during the 2018–2020 period, when activity was more robust. Despite this contraction in trading, the federal government continues to issue debt at unprecedented rates: total outstanding Treasury securities exceeded $34.7 trillion in January 2026, up $1.2 trillion from the prior year. The lack of market activity raises concerns about price discovery and financial stability. With fewer participants actively buying and selling, bid-ask spreads have widened by an average of 18 basis points on the 10-year note—an increase of nearly 60% since 2020. This reduced depth suggests that large trades could move prices significantly, increasing systemic risk during periods of stress. Market participants including primary dealers and institutional investors report tighter inventory positions and lower appetite for holding long-dated Treasuries, driven by higher interest rate volatility and regulatory capital requirements. The composition of holders has also shifted: foreign central banks now own just 14% of outstanding Treasuries—down from 30% in 2010—while mutual funds and money market vehicles now hold a larger share, reflecting shorter-term investment horizons. This trend impacts broader financial conditions. Higher yields on longer-dated bonds are filtering into mortgage rates and corporate borrowing costs. Yields on the 10-year note rose to 4.92% in mid-January, up from 3.81% a year earlier. As liquidity dries up, even modest fluctuations in demand can trigger outsized moves, affecting everything from pension fund liabilities to sovereign bond markets globally.