The traditional buyers of U.S. government debt are disappearing, leaving the system dependent on risky short-term traders — bad news for anyone with a mortgage, a pension, or savings tied to financial stability.

• America's debt has topped $40 trillion, and interest payments alone now cost more than the entire defense budget.
• China, Japan, and other foreign central banks have sharply cut back on buying U.S. bonds, and pension funds are doing the same as they shift toward 401(k)s.
• With traditional buyers stepping back, highly leveraged hedge funds have rushed in, using a risky borrowing strategy called the basis trade to buy up government debt for quick profits, not long-term stability.
• Big banks can't fill the gap either, because post-2008 regulations stop them from holding huge amounts of government debt.
• This same trade broke down once before, in 2020, and had to be rescued by the Federal Reserve pumping in over a trillion dollars — but now much of this trading has moved offshore, out of the Fed's reach.

Outlook: If this trade collapses again, borrowing costs, mortgage rates, and corporate finances worldwide could be hit hard, and this time the Fed may not have an easy way to step in and stop it.