Large investment institutions are aggressively buying U.S. Treasuries in an effort to lock in the highest yields in decades. They are betting that borrowing costs have limited room to rise and that the months-long Treasury selloff is about to ease.
Based on EPFR data, media calculations show that investors have poured nearly $14 billion into U.S. government bond funds since the start of October, while net inflows into such funds reached $59.3 billion in the third quarter, a record high.
Although that money is small relative to the $32 trillion U.S. Treasury market, fund managers say the appeal of bonds has risen markedly as the 10-year Treasury yield has surged 1.06 percentage points this year to 5.24%.
"This yield level is high, so it will naturally attract new money," said Vincent Mortier, chief investment officer at Amundi. The asset manager, which oversees 2.6 trillion euros, is gradually adding Treasury exposure to its dollar-denominated portfolios through its research and investment team.
In recent months, Treasuries have suffered a sharp selloff driven by multiple factors: the Trump administration's war with Iran pushing energy prices higher, large-scale debt financing by AI companies, and market expectations that the U.S. economy will maintain strong growth in the coming years.
Against this backdrop, investor sentiment toward Treasuries is beginning to recover. While many fund managers are reluctant to declare the selloff over, they are looking for opportunities to lock in generous fixed-income returns for years to come.
Rising yields have drawn a large number of investors into recent Treasury auctions. Last Wednesday, the U.S. Treasury issued $39 billion of 10-year notes. Hours before the auction, the 10-year Treasury yield touched 5.36%, a 24-year high. Demand at the auction was strong; the share taken by primary dealers—large banks responsible for absorbing the portion investors do not buy—fell to the lowest since 2003. Last week's 3-year and 30-year Treasury auctions also saw strong demand.
Mortier said the market expects U.S. inflation to average about 2.35% over the next decade, implying a real yield of nearly 3%, further enhancing the appeal of 10-year Treasuries.
Dan Ivascyn, chief investment officer at bond giant PIMCO, which manages $2.3 trillion, said Treasury prices could still fall further and yields could continue to rise, but compared with stocks near historic highs, Treasuries are already attractive; the extra compensation corporate bonds offer investors for taking on risk relative to virtually risk-free U.S. government debt is also very thin.
"Equity valuations are already extremely stretched, and credit spreads have narrowed. By comparison, the appeal of current bond yields stands out," Ivascyn said.
Greg Peters, co-chief investment officer at PGIM Credit, noted: "A 10-year Treasury yield above 5% is a good medium- to long-term allocation target... This is a fairly high-quality investment."
Mortier added that institutions judge that over the medium term, this round of upward inflation pressure is expected to ease, and U.S. yields are more likely to fall later than to continue rising.
However, many investors remain wary of buying long-duration bonds. After the Federal Reserve raised rates last month, the market worries that the Fed may begin a new rate-hiking cycle to curb inflation, and long-duration bonds are more vulnerable to that shock.
"I am not very willing to allocate to 30-year Treasuries," Peters said.
Vishal Khanduja, head of broad fixed income and portfolio manager at Morgan Stanley Investment Management, holds a similar view: bonds with maturities of 10 years or less are attractive, "but we have lower confidence in 20-year and 30-year bonds."
"Our judgment, and the current portfolio allocation approach, is that the current yield level is enough to attract investors to move money out of cash and some floating-rate products into fixed-rate assets to lock in this wave of income." But he also noted: "The further out you go on the yield curve, the more intense the battle over supply and demand fundamentals becomes."
He cited as an example U.S. Treasury Secretary Scott Bessent's decision to expand Treasury buybacks, which is an important variable. "When non-economic market participants intervene and distort the supply-demand fundamentals at the long end, it is hard to give a clear judgment on bond valuations," Khanduja said.
Looking beyond the United States, Peters also raised one possibility: tensions in the euro area could accelerate inflows into the Treasury market. France's presidential election next spring is drawing close attention, and the country's sovereign debt has already suffered a sharp selloff.
"It is entirely possible to have a scenario in which France has a debt problem, euro area yields rise in tandem, and money floods into U.S. Treasuries as a safe haven," he said.
Investors acknowledge that buying Treasuries now carries the risk of catching a falling knife—locking in yields now only for yields to keep surging and bond prices to fall further. But they believe current interest income already compensates for that risk.
Khanduja said: "From a quantitative perspective, the interest cushion is already thick enough. At current yield levels, investors are more likely to choose to stay invested rather than wait for yields to peak or bottom before allocating to fixed-income assets."
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