Wall Street bond dealers predict 26% decrease in net issuance

Drop-off may keep a lid on long-term U.S. yields as Fed looms

Lost in the debate over the U.S. Treasury market's resilience as the Federal Reserve starts to raise interest rates is one simple fact: supply is falling -- and fast.

Net issuance of U.S. notes and bonds will tumble 26 percent next year, according to estimates by primary dealers that are obligated to bid at Treasury debt auctions. The $433 billion of new supply would be the least since 2008.

While a narrowing budget deficit is reducing the U.S.'s funding needs, the Treasury has shifted its focus to T-bills as post-crisis regulations prompt investors to demand a larger stock of short-term debt instead. The drop-off in longer-term debt supply may keep a lid on yields, providing another reason to believe Fed Chair Janet Yellen can end an unprecedented era of easy money without causing a jump in borrowing costs that derails the economy.