The surge in U.S. debt to $38 trillion has ushered in a new era for the Treasury market, characterized by increased volatility and a shift in investor base, according to a former Treasury official. Geng Ngarmboonanant, a managing director at JPMorgan and former deputy chief of staff to Treasury Secretary Janet Yellen, warned that the "easy times" of artificially low borrowing rates are over, as profit-driven private investors increasingly dominate Treasury holdings.

In a New York Times op-ed, Ngarmboonanant highlighted the dramatic shift in Treasury ownership over the past decade. Foreign governments, which accounted for over 40% of Treasury holdings in the early 2010s, now represent less than 15%. While their holdings remain roughly the same as 15 years ago, they haven't kept pace with the explosive growth in U.S. debt. This void has been filled by private investors, including hedge funds, who are more sensitive to price fluctuations and demand higher returns.

This shift has significant implications for the U.S. financial system. The reliance on a more price-sensitive investor base could lead to increased market volatility, particularly during times of economic stress. The U.S. Treasury market, long considered a safe haven, may become more susceptible to rapid price swings as private investors react to changing economic conditions and interest rate expectations.

The rise of hedge funds and other private investors in the Treasury market reflects a broader trend of increased financialization and the search for yield in a low-interest-rate environment. However, their presence also introduces new risks, as these investors are more likely to engage in short-term trading strategies and may be quicker to exit positions during periods of uncertainty.

Looking ahead, the U.S. government will likely face higher borrowing costs and increased scrutiny from investors as it continues to finance its growing debt. Managing this debt burden will require careful fiscal policy and a commitment to maintaining investor confidence in the long-term stability of the U.S. economy. The era of easy borrowing, fueled by stable demand from foreign governments, is over, and the U.S. must adapt to a more challenging and dynamic Treasury market.