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Navigating Uncertainty in the Treasury Market
Published Date : July 31, 2025
As the saying goes, “Doubt has a loud voice in the moment, but history often tells a quieter, steadier story.”
This sentiment rings especially true in today’s Treasury market. April and May brought renewed anxiety over trade tensions and the mounting U.S. debt burden, triggering volatility—particularly in longer-dated Treasuries. But stepping back, the noise starts to fade. Despite the frequent worrisome headlines, yields have actually drifted lower across much of the curve, and intermediate-term Treasuries are generating positive returns of approximately 4.7% year-to-date through June 30th. This remains a market shaped by competing crosscurrents—some signaling opportunity, others urging caution. More importantly, it’s a market that is functioning as it should and digesting new information, repricing risk, and reflecting evolving expectations around policy.
Despite all the noise, though, there is no clear evidence of any broad-based selling of Treasuries by foreign central banks. In fact, central banks and official institutions were net buyers of Treasuries during April’s tariff-driven market sell-off, suggesting that fears about the end of U.S. exceptionalism may be overstated, and that much of the volatility likely stemmed from unwinding of crowded long positions. China is often viewed as a major force in the U.S. Treasury market, but its holdings have declined significantly in recent years. China now holds less than 3% of the total Treasury market, and that is far from a dominant and overly troubling share. While some headlines suggest Beijing could weaponize its holdings, China no longer has the scale to meaningfully disrupt the market.
By mid-spring, fiscal concerns took center stage and long-term government bond yields rose sharply, not only in the U.S. but also across global markets, as investors began to confront the implications of rising government debt. This is a legitimate concern and one that deserves increasing attention. From an investment standpoint, we have maintained an underweight position in government bonds, with a particular emphasis on reducing exposure to long-duration Treasuries. Given ongoing policy shifts, fiscal expansion, and resilient economic growth, temporary dislocations in long-term Treasuries are likely to remain part of the near-term landscape. Over time, however, we continue to believe that the Treasury market will retain its role as a safe haven during periods of market stress. The U.S. benefits from deep, liquid capital markets and a well-established legal framework.
While bond market volatility may continue, it can also open the door to potential opportunities, particularly for active managers. Did you know that there are 25 times more securities in the U.S. Aggregate Bond Index than in the S&P 500? Yet this still represents only a small slice of the $141 trillion global bond market, according to the Securities Industry and Financial Markets Association (SIFMA). Investors who rely solely on passive bond index funds are confined to a limited slice of this broader opportunity set, with a heavy tilt toward Treasuries. In today’s environment, other areas such as municipals, emerging market debt, and credit markets present compelling opportunities for active managers to add value through careful credit selection, duration management, and dynamic risk positioning.
The bond market continues to fulfill its role—absorbing new risks, repricing expectations, and offering both stability and opportunity. While headlines may highlight the noise, long-term investors are better served to focus on structure, discipline, and adaptability. Short- and intermediate-term Treasuries continue to serve as reliable ballast in diversified portfolios today, and the broader fixed income universe offers a wide range of opportunities. Especially now, thoughtful active management can help navigate volatility and unlock value where others may only see risk.
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