It's necessary to understand the importance of the treasury market to the U.S. economy.
For instance, to the financial markets a treasury bond is the equivalent of cash. Think of that $20 bill in your pocket as twenty dollars in treasuries (but without any yields).
Another way to think of treasuries is the same as holding a share of stocks in the U.S. economy.
Finally, it's important to understand that the only thing backing any paper currency in the world is the sovereign debt of that nation, and it's ability to pay back that debt. In the U.S. that debt is issued in the form of treasuries. With that in mind, you should have an idea of why any problems in the treasury market are serious.

Everywhere you turn, the biggest players in the $23.7 trillion US Treasuries market are in retreat.

From Japanese pensions and life insurers to foreign governments and US commercial banks, where once they were lining up to get their hands on US government debt, most have now stepped away. And then of course there’s the Federal Reserve, which a few weeks ago upped the pace that it plans to offload Treasuries from its balance sheet to $60 billion a month.

If one or two of these usually steadfast sources of demand were bailing, the impact, while noticeable, would likely be little cause for alarm. But for every one of them, all at once, to pull back is an undeniable source of concern, especially coming on the heels of the unprecedented volatility, deteriorating liquidity and weak auctions of recent months.

Let's start with illiquidity. It's an intentionally confusing term that generally means that the price of an asset has diverged from it's fundamental demand. In this case, treasuries became vastly overvalued.

3/7

Add to the mix that liquidity is worsening, as measured by Bloomberg.

This level of illiquidity occurs when the bond market is dysfunctional. pic.twitter.com/Z0xetCYfxX

— Jim Bianco biancoresearch.eth (@biancoresearch) September 27, 2022

The Fed, unsurprisingly, represents the largest loss of demand. The central bank more than doubled it’s debt portfolio in the two years through early 2022, to in excess of $8 trillion.

The Federal Reserve printed more than $4 Trillion out of thin air to buy treasury bonds, in effect they monetized our national debt. Monetizing debt is a perfectly fine monetary policy if your objective is to cause inflation. This policy artificially inflated the value of Treasuries. So when the Fed stopped buying treasuries they discovered that no one wanted them.
Who do I mean by "no one"? That would be east Asia.

Selling of U.S. Treasury bonds is increasing worldwide. The amount already exceeded US$200 billion this year and major countries’ current U.S. Treasury holdings are close to the 2018 level. For example, the net selling by Japan and China, the two biggest holders, is US$69.7 billion and US$98.7 billion this year, respectively. That of South Korea is approximately US$18.9 billion.

According to the U.S. Department of the Treasury, major countries’ holdings totaled US$3.9427 trillion at the end of July, the lowest since November 2018.

Japan and Korea have their own reasons for selling treasuries, but China's reason for selling is more clearly because of trade and political/military disputes with the U.S. China's treasury holding are now at their lowest level since May 2010.
Probably the biggest factor in the lack of treasury buyers is, ironically, the surging U.S. dollar. The Federal Reserve is virtually alone in dramatically raising interest rates, which has caused the dollar to rise in value against almost every other nation. If central banks in other countries buy our treasuries, it'll cause their currencies to fall even faster. This is the primary reason why Japan isn't buying.

Hedging costs have surged in tandem with the dollar, which has climbed more than 25% this year versus the yen, the most in Bloomberg data going back to 1972.

As the Fed has continued to boost rates to tame inflation in excess of 8%, Japan in September intervened to support its currency for the first time since 1998, raising speculation the country may need to actually start selling its hoard of Treasuries to further prop up the yen.

And it’s not just Japan. Countries around the world have been running down their foreign-exchange reserves to defend their currencies against the surging dollar in recent months.

Europe is in even worse shape than Japan. Their ageing population, and the lack of consumer demand that this implies, prevents them from raising interest rates to defend their currency. Otherwise the rising rates will cause a recession. However, inflation is causing chaos in their economy.

Energy prices, which rose at an annual rate of 40.8 percent in the eurozone in September, were the main contributor to the accelerating inflation, driven higher by the invasion of Ukraine by Russia. Food prices rose 11.8 percent in September, from 10.6 percent in August.

Of the 19 eurozone countries, 10 recorded double-digit overall inflation, including the largest economy, Germany, which released its own inflation result the day before — 10.9 percent. That was the highest rate of inflation that Germany had seen since 1951, well before the reunification of the former East and West...Estonia, Lithuania and Latvia all registered inflation rates above 22 percent...The Netherlands, at 17.1 percent in September, up from below 14 percent the previous month, and Slovakia, at 13.6 percent, were also in the unfortunate group of nations with higher-than-average rates.

Euro area #inflation up to 10.0% in September 2022: energy +40.8%, food, alcohol & tobacco +11.8%, other goods +5.6%, services +4.3% - flash estimate https://t.co/6PNYzrCwCS pic.twitter.com/NlnZGeoewp

— EU_Eurostat (@EU_Eurostat) September 30, 2022

With inflation running between 6% and 22%, while European bond yields at maybe 1%, this is not sustainable. On the other hand, the lack of energy in countries like Germany, is causing entire industries to shut down, which appears to be a bad time to hike interest rates.
Damned if you do and damned if you don't.

Another typical major buyer of treasuries is commercial banks, but lately they haven't stepped up either.

In the second quarter, banks purchased the least amount of Treasuries since the final three months of 2020, Barry wrote in a report last month.

“The drop in bank demand has been stunning,” he noted. “As deposit growth has slowed sharply, this has reduced bank demand for Treasuries, particularly as the duration of their assets have extended sharply this year.”

The Bloomberg U.S. Treasury Total Return Index has lost about 13% this year, almost four times as much as in 2009, the worst full year result on record for the gauge since its 1973 inception.

So what does this all mean? Some are pointing towards the world's reserve currency before the U.S. dollar achieved global hegemony - the U.K. Pound.

Cabana argues that the danger of a US Treasury market “breakdown” has grown due to a “demand vacuum” and subsequent deterioration in liquidity, with order book depth across two year notes at the lowest level since March 2020 (we’re not going to patronise anyone by explaining the significance of that month)...Policy makers assume the UST market will always be liquid, it won’t; liquidity is a privilege, not a right.

This dynamic leaves the US bond market vulnerable to a “market functioning breakdown” similar to what the UK suffered this week, he argues.