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Inflation remains high, the tightening policy of the Federal Reserve and overwhelming US debt have wreaked havoc on US Treasuries this year.

Now, economists are noticing a worrying fundamental imbalance in the bond market. There are trillions of dollars worth of bonds for sale, they say, but there is a growing shortage of buyers. If this trend continues, it could result credit problems and hinder the US government’s ability to finance itself. That’s especially concerning after America’s national debt soared north of $31 trillion for the first time on Monday.

What is happening: US bond prices rallied this week as investors, buoyed by a shrinking labor market, bet the Federal Reserve could ease its aggressive rate hike policy sooner than expected. The upward swing brought temporary relief to the bond market, which is in the middle of a historically terrible year.

But that relief could be short-lived. US Treasuries – backed by the US government and considered the safest of bonds – are suffering from what JPMorgan analysts describe as a “structural lack of demand.”

JPMorgan strategists, led by Jay Barry and Srini Ramaswamy, write that the three main buyers of US government debt – the Federal Reserve, commercial banks and foreign governments – have significantly eased their purchases.

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

The Fed’s move was expected. At the start of the Covid-19 pandemic, growth slowed and the Fed began buying $120 billion in government-backed bonds each month as a way to inject money into the economy. Now, the central bank has reversed course.

However, overall, the fall in demand for Treasuries is notable.

“The reversal in demand was remarkable because demand from all three of these types of investors is rarely negative at the same time,” Barry and Ramaswamy wrote.

What’s ahead: Investors will be paying close attention to the unemployment numbers out this Friday. If unemployment rises, it could signal that the Fed will ease its rate hikes. That’s good news for the bond market. If unemployment remains low, the withdrawal from Treasuries could continue.

As bond prices fall, yields rise, raising the cost of borrowing for the government.

Prices at the pump could rise again this winter.

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

That’s a pretty big deal. OPEC is responsible for almost 40% of the world’s oil supply.

Analysts expect some in OPEC+ to propose limiting supplies enough to bring the price of oil back to $90 a barrel. Prices on Tuesday rose around $86 for a barrel of Brent crude, the international benchmark. That’s a decrease of about a quarter from June.

The potential supply shift could add more pain to an already faltering European economy: Russia’s war on Ukraine has already significantly curtailed energy supplies in Europe. The governments of Germany and the United Kingdom have recently announced expensive interventions to limit bills and prevent a heating crisis this winter.

Oil prices in the United States are also currently elevated as hurricanes raise concerns about potential supply disruptions.

Brent rose nearly $3 a barrel on Tuesday. He was steady on Wednesday before the meeting.

The US labor market showed signs of loosening in August, my colleague Alicia Wallace reports.

The number of job openings fell just below 10.1 million, down from 11.2 million in July, according to data released by the Bureau of Labor Statistics on Tuesday. That’s the lowest total since June 2021.

The latest Job Openings and Labor Turnover Survey, or JOLTS, showed that the decline in available jobs – the biggest monthly decline since April 2020 – means there are now nearly 1.7 job openings for every job seeker, down from two openings per post. candidate in July.

That is a source of great satisfaction for the Federal Reserve, which is seeking further slack in the labor market out of concern that tight employment could push up wages and ultimately keep inflation elevated.

But while the latest turnover data appears to be showing up some evening in a historically tight labor market, there is still a long way to go.

What’s ahead: JOLTS is the first of several key labor market reports due this week: The ADP private sector payrolls and wages report will be released on Wednesday; the latest initial weekly jobless claims from the Labor Department on Thursday; and Friday’s September job report.

All of the following could figure heavily at the Fed’s next policymaking meeting in early November.

ISM Services The September PMI, an indicator of the overall economic situation for the US services sector, is released at 10 am ET.

The ADP National Employment Report for September is released at 8:15 am ET. The release, two days ahead of government data, is largely used to forecast official US unemployment numbers.

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