Despite the huge shock that US Treasuries endured in the first few months of Donald Trump’s tumultuous second term, the market performed well, while government bonds from the UK to Japan were battered by intensifying fiscal concerns.
The yield on the 10-year US Treasury note has dropped by more than a third of a percentage point this year, making US Treasuries the only major bond market with a decline in yields of that maturity. This outstanding performance even extends to the unpopular 30-year bonds: although the yield on long-term US bonds rose by about an eighth of a percentage point in 2025, it still stands out as quite considerable compared to the increase of about half a percentage point in the UK, nearly three quarters of a percentage point in France, and a full percentage point in Japan.
Meanwhile, the volatility of the US bond market has been on a downward trend since April, with the main indicator measuring the fluctuations in the US Treasury bond market approaching its lowest level in three years.
“The bond market has been very calm,” said Ed Yardeni, a Wall Street veteran and founder of Yardeni Research. Against the backdrop of turmoil in other debt markets and heavy fiscal and economic pressures, the United States “does indeed stand out as particularly stable.”
Adeney coined the term “bond vigilantes” in the 1980s to describe investors who sold government bonds and pushed up yields in order to enforce fiscal discipline. Although US bond yields have indeed remained at relatively high levels since Trump’s election, this targeted market pressure seems to have dissipated now.
To be fair, the economy is the key driver of the market. The yield on US Treasuries has declined in recent days – the 10-year yield fell below 4.17% for the first time since early May – as data showed a slowdown in job growth, and Friday’s August jobs report may further confirm this. This opens the window for the Federal Reserve to cut interest rates as early as this month, while the European Central Bank is pausing its policy easing and the Bank of Japan is preparing to raise rates.
Priya Misra, a portfolio manager at JPMorgan Asset Management, said: “If the labor market continues to lose momentum, this trend in the US economy could persist.” She favors what is known as a steepener strategy, which involves betting on short-term debt rather than long-term securities.
Perhaps complacency is also at play. If, as bond experts such as Ray Dalio predict, a long-brewing crisis is on the horizon, this would not be the first time that investors have found themselves in trouble while sleepwalking. Moreover, there are indeed some disturbing signs in the market.
Like their global counterparts, 30-year US Treasuries have underperformed other parts of the government debt curve, while the 10-year “term premium” – a measure of the extra compensation investors demand for holding long-term bonds – is near its highest level in a decade.
The five-year inflation swap, a gauge of market expectations for future price rises, has recently climbed to its highest level in two years. Strategists at Goldman Sachs say this is a “trace” of the uncertainty surrounding the Federal Reserve and its ability to implement monetary policy independently.
Concerns over the independence of the Federal Reserve have also emerged from time to time in other areas, such as stocks and commodities. But overall, at least for now, US bond investors are reluctant to sound any alarm, which reassures the Trump administration, whose main policy goal is to lower the yield on 10-year Treasury bonds.
Other supporting factors are also at play. On the fiscal front, tariff revenues – an unexpected windfall estimated at around $300 billion this year – should help fill some of the budget holes, although the legality of these levies is currently under question and the final revenue level could change or even decline if the trade war curbs economic growth. However, at least some of the market concerns have been alleviated as risk premiums have risen. Inflation remains high but shows little sign of abating.
In terms of debt management, Treasury Secretary Scott Bessent has hinted that if buyers are scarce, he will limit the sale of long-term bonds and may be willing to use other tools to cap yields. Meanwhile, claims that foreign investors are pulling out of US assets have not yet been confirmed by the data, which still shows that demand for US debt remains strong amid relatively volatile prospects in other markets.
