Treasuries have powered into first place among major sovereign bond markets this year as the prospect of a new round of Federal Reserve interest-rate cuts overturns widely held bearish views on US debt.
US government securities have returned 5.8% in 2025, the best result among the world’s 15 biggest debt markets in local-currency terms, based on Bloomberg indexes. In a sign of the rally’s magnitude, the extra yield on Treasuries over their global peers — while still significant — has dropped to a three-year low.
True, for dollar-based investors, the weak greenback has boosted the returns of overseas assets versus Treasuries. But stripping out the currency and comparing just the performance of bonds, sovereign debt in other major markets has underperformed under a barrage of bad news, including rising fiscal deficits in places such as France, a hawkish central bank in Japan and surging stocks in China.
“The Fed isn’t cutting into a strong economy, it’s cutting into weakness and this should form the basis for Treasuries to outperform,” said Prashant Newnaha, senior Asia-Pacific rates strategist at TD Securities in Singapore, who has covered debt markets for 25 years. “By comparison, Japan to the UK to France, all have problems spanning fiscal to politics that’s bludgeoning sentiment on their debt.”
Short-dated Treasuries posted further gains on Tuesday, sending the two-year yield one basis point lower to 3.52%. The 10-year yield was steady at 4.04%.
The prospect of looming Fed rate cuts has more than offset concerns that were swirling around Treasuries just a few months ago. At that time, many analysts turned bearish on the securities due to concern over US deficits consistently running above 6% of gross domestic product.
Analysts also pointed to a host of further negatives including Donald Trump’s combative tariff policies that were chipping away at US exceptionalism, and his criticisms of Fed Chair Jerome Powell that were seen as undermining the central bank’s independence.
Now, the major focus is on the pace of policy easing, with swaps traders pricing in almost three full 25 basis-point rate cuts by year-end, with the first at the Fed’s meeting on Wednesday. Cooling US payroll data released earlier this month even saw markets briefly anticipate some chance of a 50 basis-point move this week.
Meanwhile, the showdown between the Trump administration and the Fed intensified Monday as an appeals court blocked the removal of Federal Reserve Governor Lisa Cook from her post for now. Separately, the Senate confirmed a seat for Trump’s economic adviser Stephen Miran.
US 10-year yields have dropped about 50 basis points this year, and are currently hovering near a five-month low. In comparison, similar-maturity yields have climbed about 20 basis points in China, almost 30 basis points in France, and almost 50 basis points in Japan.
The yield advantage on Treasuries over other global sovereign bonds shrank to 120 basis points on Monday, from more than 200 basis points in January, based on the spread between the Bloomberg US Treasury total return index and a similar gauge of non-US global sovereign debt.
“We have seen fiscal and supply concerns hitting long ends in countries ranging from Japan to the UK and France,” said Andrew Ticehurst, a strategist at Nomura Holdings Inc. in Sydney. Conversely, soft US payrolls data and dovish signaling from the Fed “seem to be dominating at present and boosting Treasuries,” he said.
While Treasuries have beaten all-comers this year in local-currency terms, the story is quite different if foreign-exchange fluctuations are taken into account.
The slide in the greenback this year feeds through into extra returns for dollar-based investors who put their money into assets denominated in non-US currencies. Based on this measure, Italian bonds are the best-performing major debt market in 2025, returning 16%, followed by Spain on 15%.
BlackRock Inc. is among the companies that see better opportunities in sovereign bonds outside Treasuries.
“We’d favor the European and even the gilt market over and above Treasuries at the moment, from a relative value perspective,” said Simon Blundell, co-head of EMEA fundamental fixed income at the money manager in London. “Across our global type mandates and funds, we’re favoring exposure to European assets hedged back into US dollars.”
Still, the prospect of a new round of Fed easing may result in further gains in Treasuries, enabling the securities to overcome the handicap of a weaker dollar.
“There is indeed virtually no further doubt that the Fed will deliver a rate cut this month,” Benoit Anne, senior managing director at MFS Investment Management in London, wrote in a note last week. The weak US nonfarm payroll print “has helped support the case for being long US duration, at least from a near-term perspective.”
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