Investors can't get enough US debt as Treasury bills are bought at a record pace

• In just the past three months, over $1 trillion in new Treasury bills have been purchased.
• Noncompetitive bidders bought a record-high $2.898 billion of six-month bills in mid-August, Bloomberg said.

Investors are scrambling to buy up US debt as the Treasury Department unleashes a flood of short-term bills on the market.

In the past three months, more than $1 trillion in new T-bills have been snapped up as federal deficits have exploded, and smaller investors are increasingly jumping into the market as yields surge past 5%.

At a weekly auction in mid-August, so-called noncompetitive bidders, meaning those who don't submit competitive bids and instead take the yield offered, bought a record $2.898 billion of six-month bills at 5.29%, according to Bloomberg.

That volume was five times more than what was seen before the Federal Reserve launched its rate-hiking campaign in March 2022, which put upside pressure on borrowing costs.

Demand for short-term US debt is so high that the balance sheets of primary dealers, who serve as bond market middle men, have tumbled from a record high of $116 billion in July to about $45 billion in August, Bloomberg said.

Robust demand for T-bills comes as the Fed stopped buying bonds last year and has been shrinking its balance sheet, leaving others in the market to pick up the slack.

In fact, the US debt binge may force the Fed to halt its quantitative tightening campaign so the financial system doesn't become unstable, according to economists at the St. Louis Fed.

Meanwhile, a whopping $7.6 trillion in interest-bearing US public debt will mature within a year, representing 31% of all outstanding government debt.