Wall Street banks are increasingly choosing to hoard their US bonds rather than sell them to the Federal Reserve as speculation grows that a slowing economy and global financial turmoil will only make them more valuable.
The world's biggest bond dealers offered an average of US$7.2 billion in Treasuries a day to the central bank last month, down 40.5 per cent from a high of US$12.1 billion in October.
The amount tendered has fallen even as the dealers almost doubled their holdings of the securities.
While the amount of marketable US government debt outstanding has risen to more than US$10.5 trillion, Treasuries are proving scarce in a world where five nations in Europe have sought bailouts, the US economy is slowing again and China is weakening.
That means interest rates on everything from mortgages to corporate bonds should remain at about record lows.
"People are not willing to sell Treasuries," said Thanos Bardas, a managing director in Chicago at Neuberger Berman, which oversees about US$89 billion in fixed-income assets.
"The data in the US doesn't look as good," Bardas said.
"The labour market has lost momentum. There will be more upside left in Treasuries despite the low levels of rates."
Concern that the economy is losing momentum came when a Labour Department report showed American employers added fewer workers to payrolls last month than forecast and the jobless rate stayed at 8.2 per cent.
The International Monetary Fund will reduce its 3.5 per cent estimate for global growth this year on weakness in investment, jobs and manufacturing in Europe, the US, Brazil, India and China, managing director Christine Lagarde said.
Treasuries trail the Standard & Poor's 500 index of stocks, which has returned 9 per cent with reinvested dividends, while beating the 6 per cent loss posted by the Thomson Reuters/Jefferies CRB Index of raw materials.
"There is a reach for quality in the market," said Larry Milstein, managing director in New York of government and agency debt trading at RW Pressprich & Co.
The Fed under chairman Ben Bernanke bought US$2.3 trillion of Treasury and mortgage-related debt to stimulate the economy.
It decided last month to extend a policy known as Operation Twist where it sells short-term securities and uses the proceeds to buy longer-term debt.