The $1.2 trillion of mortgage-backed securities the Federal Reserve has amassed to stoke economic growth is creating a potential firewall that dealers say is shielding the bond market from a rapid decline as policy makers debate scaling back debt purchases.

The stockpile, which has made the Fed the biggest holder of government-backed mortgage bonds, is cutting the risk that a sudden jump in Treasury yields will lead to an even bigger surge as investors place bearish bets to protect against housing-debt losses triggered by rising rates, a practice known as convexity hedging, according to dealers from Deutsche Bank AG to Barclays Plc.