 "Investors pull billions from long-term US bond funds amid debt, inflation worries")
Investors are rapidly exiting long-term US bond funds at the fastest pace since the Covid-19 pandemic, as concerns mount over America’s swelling debt and inflation outlook.
Net outflows from long-duration funds, which include government and corporate bonds, have reached nearly $11 billion so far in the second quarter, according to calculations based on EPFR data.
The latest withdrawals mark a sharp reversal from the average inflows of $20 billion seen over the past 12 quarters. Fund flow data, while only a snapshot of the broader US bond market, serves as a key indicator of investor sentiment, and the shift suggests growing discomfort with the long-term fiscal trajectory of the United States, according to a report by Financial Times.
Inflation, fiscal concerns weigh on sentiment
The outflows come amid heightened unease over President Donald Trump’s proposed tax package, which independent analysts estimate could add trillions to the national debt. While the administration argues that tariffs and economic growth will offset the fiscal impact, investors are wary of the bond supply glut that may follow.
“It’s a symptom of a much bigger problem,” said Bill Campbell of DoubleLine. “There is a lot of concern domestically and from the foreign investor community about owning the long end of the Treasury curve.”
Market participants are also bracing for the inflationary effects of the administration’s tariffs on trading partners. Inflation poses a particular risk to long-term bonds, as rising prices erode the real value of fixed interest payments.
“It’s a volatile environment, with inflation still above target and heavy government supply as far as the eye can see,” said Robert Tipp of PGIM. Goldman Sachs strategist Lotfi Karoui said the trend “reflects concerns over the longer-run outlook for fiscal sustainability.”
Investors move to short-term bonds, global options
The concerns have been mirrored in price declines, with long-term US bonds losing about 1 percent this quarter, according to a Bloomberg index. That’s a rebound from sharper losses seen after Trump’s April tariff announcements, which initially shook markets.
In contrast, short-term US bond funds have continued to attract capital, drawing over $39 billion this quarter alone. These funds are currently offering higher yields as the Federal Reserve maintains elevated short-term interest rates.
Impact Shorts
More ShortsAndrzej Skiba of RBC Global Asset Management said investors may begin diversifying more heavily into international fixed income. However, he added, “we don’t think it’s the end of the Treasury market, and the role of Treasuries as a core holding in global fixed income portfolios.”
Still, he cautioned that markets may begin to demand “more compensation to invest further out the curve,” suggesting investors could require higher yields to hold long-term debt. “Even though we don’t see an earthquake coming, you could see tremors,” Skiba said.
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