While Pimco's $1.24 trillion in assets under management commands the attention of investors, foreign central banks and sovereign wealth funds exert a bigger day-to-day pull on Treasury yields, said John Fath, who manages $2.5 billion at BTG Pactual in New York.

"Gross's point is well-taken and ultimately I think he will be right," said Fath, former head of Treasury trading at primary dealer UBS AG. Even so, "if these guys are willing to hold these securities at these levels, it's going to be hard to see rates go up," he said in reference to overseas investors.

Foreign holdings of Treasuries jumped $36.4 billion to $4.47 trillion in the first two months of the year, according to the Treasury. U.S. financial markets should be stable over the long term, even after S&P's warning, Xia Bin, an adviser to the Chinese central bank, said last week.

Increasing Holdings

Banks have increased their holdings of Treasuries and agency securities by $49.1 billion to $1.67 trillion since the end of last year, according to Fed data. The Basel Committee on Banking Supervision, appointed by the Swiss government, proposed rules in October requiring banks to increase available capital under the so-called Basel III rules.

While commercial and industrial loans rose to $1.25 trillion this month from $1.21 trillion in September, they remain below the peak of $1.62 trillion in October 2008, Fed data show.

Banks may boost their purchases as they reinvest the proceeds of maturing loans and non-government bonds, according to Laurence Fink, chairman and chief executive officer of New York-based BlackRock Inc., which manages $3.65 trillion.

"Banks are going to have their C&I loans and their structured bonds rolling off to the tune of $2 trillion," Fink said April 19 on Bloomberg Television's InsideTrack with Erik Schatzker. "Banks may be a big buyer of Treasuries."

End Of QE2

The end of the Fed's second-round of so-called quantitative easing may not be enough to spark a sell-off. The $600 billion bond-purchase program wraps up in June, and the Fed is likely to signal at the conclusion of this week's meeting it will continue to reinvest the proceeds of maturing mortgage securities in Treasuries, said Neal Soss, chief economist at Credit Suisse.