- U.S. Treasuries posted their best year since 2020 in 2025, with broad indexes up over 6% as yields fell on Fed cut expectations and safe-haven demand.
- Yields ended 2025 around 4.15% on the 10-year and 4.84% on the 30-year, and edged lower at the start of 2026.
- Markets price roughly 60 bps of Fed easing in 2026, but stronger growth, inflation surprises, and fiscal stimulus could cap further bond gains, especially at the long end.
- Investors are watching for yield-curve steepening and reassessing duration versus tight-spread corporate bonds as policy and data evolve.
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In 2025, U.S. Treasury securities stood out as one of the market’s strongest performers. Index measures such as those from Bloomberg returned over 6%, making 2025 the best year for Treasuries since the dovish pandemic- era run in 2020. Yields across key maturities dropped substantially: the 10-year Treasury note declined to around 4.15%, while the 30-year yield was about 4.84% at the end of the year.
Several factors underpinned this strong performance. First, expectations of Federal Reserve rate cuts—as inflation cooled modestly and the labor market showed early signs of loosening—moved yields downward. Second, economic policy shifts, among them tariff pressures and trade policy uncertainty, triggered “flight to safety” behavior, boosting demand for secure government bonds. Third, volatility in risk assets and tighter credit spreads in the corporate bond market further increased the appeal of Treasuries.
Still, despite favorable conditions in 2025, maintaining momentum into 2026 may prove difficult. Traders are pricing in about 60 basis points of Fed cuts for 2026—a smaller easing cycle than in 2025. At the same time, fiscal stimulus through tariff revenue and tax spending programs under the current administration may place upward pressure on yields, especially at the long end of the curve. Key economic data—such as inflation, growth, and labor market strength—will remain pivotal in shaping Treasury returns. Any surprise uptick in inflation or acceleration in growth could counteract rate cut expectations. Moreover, potential shifts in Federal Reserve leadership may also shift policy tone.
Strategically, investors should closely monitor the yield curve for signs of steepening, particularly between short and long maturities. Given the backdrop, duration exposure via long-term Treasuries could offer upside if rate cuts arrive, but carries risk of losses if yields rise. Furthermore, given tight credit spreads and attractive corporate bond yields, the tradeoff between quality fixed income and sovereign debt should be reassessed. Lastly, policymakers face a balancing act: supporting growth without igniting inflation, all while managing rising borrowing costs.
Open questions include:
- How aggressively will the Fed cut in 2026, and how will shifts in growth or inflation alter those expectations?
- To what extent will fiscal policy—tariffs, spending, tax cuts—counteract yield compression?
- Will long-term Treasury yields stay anchored or begin to drift upward, especially if government debt issuance accelerates?
- How might Federal Reserve leadership changes affect policy stance, communication, and market expectations?
Supporting Notes
- The Bloomberg index tracking U.S. Treasuries posted more than a 6% total return in 2025, marking its strongest year since 2020.
- On the first trading day of 2026, the 10-year Treasury yield dropped two basis points to 4.15%, and the 30-year yield fell one basis point to 4.84%.
- Treasury Secretary Scott Bessent stated that the Treasury market’s total returns year-to-date were approximately 6%, the best since 2020, and that borrowing costs across maturities were down.
- The Morningstar US Core Bond TR YSD index, which includes investment-grade government and corporate bonds over one year maturity, returned about 7.3% in 2025.
- Shorter-dated yields dropped more sharply driven by Fed rate cut expectations, while longer maturities experienced smaller declines or slight increases due to fiscal and inflation pressures.
- Analysts expect approximately 60 basis points of rate cuts in 2026, fewer than in 2025, while warning that fiscal stimulus and economic growth could challenge further yield declines.