In recent years, Treasury market volatility has come in the form of "tantrums" wrought by the Federal Reserve or other central banks.
Now, that volatility could be spurred by the Trump administration. Hawkish foreign policy positions, coupled with looser domestic regulation, could create an avalanche of selling from two of the biggest Treasury buyers: big U.S. banks and China.
Since the financial crisis, banks have been stockpiling Treasurys because they qualify as "safe" assets that count toward required regulatory capital levels. U.S. commercial banks now hold $2.4 trillion in government debt and agency securities, more than double the total from nine years ago, according to the St. Louis Fed.
But House Republicans — with the support of the administration — are pushing to roll back parts of the Dodd-Frank regulations that were put in place after the 2008 financial crisis. That means banks could get a reprieve from those capital level requirements, and they could reduce their Treasury holdings as a result.