Investors brave US Treasury rout to lock in highest yields in decades

Big investors are moving decisively into US Treasuries, seeking to lock in the highest borrowing costs in decades on the conviction that a months-long sell-off has largely run its course. Government bond funds have drawn nearly $14bn since the start of October, building on record third-quarter net inflows of $59.3bn, according to fund flow data. The buying spree follows a 1.06 percentage point surge in 10-year Treasury yields this year to 5.24 per cent, a level that fund managers say has fundamentally changed the risk-reward calculus for the world’s benchmark debt market.

The renewed appetite for US government bonds marks a notable turn after a powerful rout driven by rising energy costs tied to the Iran war, heavy debt issuance from artificial intelligence companies, and expectations of vigorous US economic growth. While the inflows represent only a small fraction of the $32tn Treasury market, they signal that institutional investors increasingly view current yield levels as an opportunity to secure attractive fixed returns for years to come.

Vincent Mortier, chief investment officer at Amundi, the €2.6tn asset manager, said the 10-year yield’s rise of 1.06 percentage points this year to 5.24 per cent had made bonds more attractive, and his teams were “adding exposure progressively” to Treasuries for dollar-denominated portfolios. The appeal is reinforced by market-based expectations that inflation will average roughly 2.35 per cent over the next decade, implying a real return of almost 3 per cent on 10-year notes.

The buying has shown up in auction demand. The $39bn sale of 10-year notes last Wednesday came just hours after yields touched a 24-year peak of 5.36 per cent, and primary dealers recorded their lowest participation rate since 2003, a sign that end investors absorbed an unusually large share of the supply. Three- and 30-year auctions were also robust.

Dan Ivascyn, chief investment officer at Pimco, said Treasuries looked attractive relative to stocks trading near record highs, noting that corporate bonds offered scant additional compensation for risk compared with ultra-low-risk US government debt. Greg Peters, co-chief investment officer at PGIM Credit, called a 10-year yield above 5 per cent “a good medium-to-longer-term hold.”

The enthusiasm follows a powerful sell-off driven by rising energy costs linked to President Donald Trump’s Iran war, heavy debt issuance by AI companies, and expectations of vigorous US economic growth. Amundi’s Vincent Mortier said market-based expectations of inflation averaging around 2.35 per cent over the next decade imply a real return of almost 3 per cent on 10-year Treasuries.

Yet conviction is not uniform across the curve. Several investors flagged caution on longer maturities. Peters said he was not sure he would go out to 30-year Treasuries, while Vishal Khanduja at Morgan Stanley Investment Management called maturities up to 10 years attractive but expressed lower conviction for 20- and 30-year paper. The concern: the Federal Reserve