When it comes to sovereign bond yields, popular discourse tends to turn on supply for one simple reason: Supply’s a function of fiscal policy, fiscal policy’s a contentious topic and people like to argue.

Why is the budget not balanced? How much are we borrowing? What are we spending the borrowed money on? And, most provocatively for developed market sovereigns: Why are we borrowing in the first place when we can issue hard currency at will?

Most regular people don’t think a lot about the demand side of the equation, but Wall Street does, and in the summer of 2023, shifting demand dynamics for US Treasurys became the hottest of hot topics.

Then, in the wake of Donald Trump’s “Liberation Day” tariffs, demand concerns resurfaced as critics cautioned on the read-across for foreign investors of capricious economic policy including and especially a hodgepodge of very bad ideas about weaponizing US capital markets.

Being a market-savvy bunch, most readers here are familiar with the narrative. A good year for bonds notwithstanding, the long-end of the Treasury curve (and it’s not alone in this regard among DM sovereign curves) is haunted by a confluence of a potentially bearish factors including a shifting buyer base, where that means price-agnostic buyers like central banks and reserve managers are buying less duration, leaving more for price-sensitive investors to absorb.

With that in mind, have a look at the figure below from JPMorgan which shows you historical net QE from the big four central banks, along with projections for this year and next.

The takeaway, obviously, is that bond demand from the Fed, the ECB, the BoE and the BoJ turned negative in 2023 amid QT associated with efforts to combat inflation across the developed world. It’s been negative since.

Net demand from the big four was -$1.3 trillion this year, roughly the same as last year, JPMorgan’s Nikolaos Panigirtzoglou wrote, in his latest, noting that “the Fed slowing its QT pace and finally announcing an end to QT from the start of December has been largely offset by the ECB’s shift to full run-off in its PEPP portfolio as well as a gradual increase in the BoJ’s QT pace over the course of the year.”

Looking out to next year, the bank expects net demand from G4 central banks to be only slightly less negative, at -$1.2 trillion. Note that we’re talking about bond demand here, so you have to exclude Fed MBS proceed rollovers into T-Bills (bills are short-term paper, not coupons).

Of course, central banks are just one source of demand, but to reiterate: They’re one of only two or three price-agnostic demand sources. Other buyers want a fair price, which is to say a price that compensates investors for the risks associated with fiscal profligacy and government dysfunction, both of which are, unfortunately, fixtures of the developed market political scene.