One of the biggest markets in the world is facing a $1 trillion disconnect — here's how it can be fixed

pulse

June 2, 2017 1:05 PM

With trillions of dollars in Treasurys set to flood the US market over the next five years, there will be a $1 trillion demand shortfall.

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Trillions of dollars in Treasurys are set to flood the US investment landscape over the next five years, setting up a reckoning in one of the world's biggest markets.

Even in a best-case scenario, it will result in a $1 trillion shortfall in bond demand that will need to be absorbed to maintain harmony, according to Bank of America Merrill Lynch.

That means someone has to step up.

But who? Not the foreign private investors who have helped bridge the gap over the past two years. Demand from them is likely to dry up with both the European Central Bank and the Bank of Japan set to taper asset purchases, leading to a weaker dollar, according to BAML.

Instead, the firm has identified two groups that will be looked upon to fill the supply-and-demand chasm that will form. And they fall outside price-insensitive buyers like domestic banks and the Federal Reserve that have previously been able to soften the blow.

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