This graph shows that fixed income investors substituted AAA rated mortgage bonds for US Treasury bonds during the housing bubble. The market for mortgage bonds shrunk dramatically when the housing bubble and securitization market collapsed. Fixed income investors have increased their purchase of US Treasury bonds as a result. Lower yielding Treasuries have replaced the demand for mortgage bonds. Apparently, there is a large market for low risk fixed income securities. Moreover, these data show that the purchase of government debt does not "crowd out" out the private debt market and drive up private interest rates, and reduce business investment, as many economist assume. There is a large market for risk free debt that depends upon US treasuries in the absence of alternative low risk securities.
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