Rather than providing money to businesses and consumers, U.S. commercial banks are increasingly using the cash available at interest rates set by the Federal Reserve that are next to zero and lending it back to the government. Since June, the biggest banks bought about $127 billion of Treasuries, compared with $47 billion in the first half, according to the central bank. Commercial and industrial loans outstanding have fallen by about $68.5 billion this year, central bank data show.

While the Fed and Chairman Ben S. Bernanke said last week they will pump $600 billion more into the financial system through so-called quantitative easing to aid the economy and boost the flow of credit, a growing number of bond investors and strategists say the allure of government debt may only get stronger. New global banking rules will force lenders to hold a greater percentage of capital if they want to invest in riskier securities or make new loans.

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