Inflationary pressures, the Federal Reserve’s tightening policy, and record-high US debt have all wreaked havoc on US Treasuries this year.

Economists are now noticing a fundamental and concerning imbalance in the bond market. They claim there are trillions of dollars in bonds for sale, but a growing scarcity of buyers. If this trend continues, it may cause credit problems and impair the US government’s ability to fund itself. This is especially concerning given that America’s national debt surpassed $31 trillion for the first time on Monday.

This week, US bond prices rose alongside equities as investors bet that the Federal Reserve will ease its aggressive rate hike policy sooner than expected, fueled by a weakening labor market. The uptick provided some temporary relief to the bond market, which is having a historically bad year.

However, that relief may be fleeting. The US Treasury, which is backed by the US government and considered the safest of bonds, is experiencing a “structural absence of demand,” according to JPMorgan analysts.

According to JPMorgan strategists Jay Barry and Srini Ramaswamy, the three main buyers of US government debt — the Federal Reserve, commercial banks, and foreign governments — have significantly reduced their purchases.

Using Federal Reserve data, they discovered that commercial banks’ collective holdings fell by $60 billion in the last six months compared to the same period last year, after increasing by more than $700 billion between 2020 and 2021. Over the last six months, foreign governments’ official holdings have fallen by $50 billion. Meanwhile, the Federal Reserve has reduced its Treasury holdings by about $180 billion this year as part of its monetary tightening program to combat inflation and cool the economy.

The Fed’s action was expected. When the Covid-19 pandemic hit, growth slowed, and the Fed began buying $120 billion in government-backed bonds every month to inject money into the economy. The central bank has now reversed its position.

Investors will be paying close attention to the unemployment figures due out this Friday. If unemployment rises, it may signal that the Fed will slow its rate hikes. That is encouraging for the bond market. If unemployment remains low, the sell-off in Treasuries may continue.

OPEC+, the Organization of Petroleum Exporting Countries, and a group of non-OPEC members led by Russia, will meet today to discuss energy markets and may agree to cut oil production in response to the recent drop in oil prices.

That is quite significant. OPEC controls nearly 40% of the world’s oil supply.

Analysts predict that some OPEC+ members will advocate for limiting supplies sufficiently to bring the price of oil back up to $90 per barrel. Brent crude, the international benchmark, was trading around $86 per barrel on Tuesday. This has decreased by about a quarter since June.

The potential supply shift could aggravate an already ailing European economy: Russia’s war on Ukraine has already significantly reduced European energy supplies. The governments of Germany and the United Kingdom recently announced costly interventions to cap bills and avoid a heating crisis this winter.

According to my colleague Alicia Wallace, the tight labor market in the United States began to loosen in August.

According to data released Tuesday by the Bureau of Labor Statistics, the number of job openings fell to just under 10.1 million, down from 11.2 million in July. This is the lowest figure since June 2021.

According to the most recent Job Openings and Labor Turnover Survey, or JOLTS, the decrease in available jobs — the largest monthly decline since April 2020 — means that there are now nearly 1.7 positions open for every job seeker, down from two openings per job seeker in July.

That is good news for the Federal Reserve, which wants more slack in the labor market because it is concerned that tight employment will drive up wages and ultimately keep inflation high.

However, while the most recent turnover data appears to indicate some leveling off in a historically tight labor market, there is still a long way to go.