Investors are increasingly turning to US Treasuries to secure attractive yields amid a prolonged sell-off in government bonds that has pushed borrowing costs to multi-decade highs. Since the beginning of October, nearly $14 billion has flowed into US government bond funds, following record net inflows of $59.3 billion in the third quarter, according to data analysis derived from EPFR figures. While these inflows comprise a modest portion of the $32 trillion Treasury market, fund managers emphasize that the surge in 10-year Treasury yields—up 1.06 percentage points this year to 5.24 percent—has enhanced the appeal of government debt.

Major asset managers, including Amundi and BlackRock, have signaled growing interest in US Treasuries, with both firms progressively increasing exposure to dollar-denominated bonds to lock in income. BlackRock, the world’s largest money manager, recently indicated that expectations for further Federal Reserve interest rate hikes may be overstated, reinforcing its position across Treasuries of various maturities.

The spike in yields and subsequent intense market volatility have been attributed to several factors, including rising energy costs linked to geopolitical tensions involving Iran, increased debt issuance by artificial intelligence companies, and forecasts for robust US economic expansion. Despite caution surrounding the timing of a potential market bottom, many investors are drawn to the prospect of securing fixed returns over the medium to long term.

Demand at recent Treasury auctions highlights this trend, notably for the $39 billion of 10-year notes issued shortly after yields briefly touched a 24-year high of 5.36 percent. Primary dealers, who typically absorb unsold allocations, registered participation at the lowest levels since 2003, underscoring strong investor appetite. The three-year and 30-year auctions held the same week also saw solid demand.

The attractiveness of 10-year Treasuries is partly supported by market expectations that inflation will average around 2.35 percent over the next decade, translating into a real yield of nearly 3 percent. Some investors view this as a favorable risk-return dynamic compared to stretched equity valuations and tight credit spreads in corporate bonds. Pimco's chief investment officer Dan Ivascyn described Treasuries as relatively appealing relative to stocks trading near record highs, while Greg Peters, co-chief investment officer at PGIM Credit, characterized a 10-year yield above 5 percent as a sound medium- to longer-term investment.

However, caution persists regarding longer-dated maturities. Investors remain wary of extended duration bonds, given the potential for further Federal Reserve rate increases aimed at containing inflation. Peters expressed reluctance to extend holdings to 30-year Treasuries, a sentiment echoed by Morgan Stanley Investment Management’s Vishal Khanduja, who rates bonds maturing within 10 years as attractive but has lower conviction in 20- and 30-year securities. Khanduja also noted that these yields create incentives for investors to shift from cash and floating-rate instruments into fixed-rate securities.

Supply-and-demand dynamics complicate the picture for long-duration Treasuries, with technical factors intensified by Treasury Secretary Scott Bessent's decision to expand debt buybacks. Looking externally, geopolitical and financial uncertainties in the Eurozone could spur additional inflows into US government debt, Peters suggested, pointing to potential yield increases in Europe stemming from political challenges in countries like France.

While investors recognize the risk of entering the market ahead of further yield increases—sometimes referred to as “catching a falling knife”—many argue that current income levels provide sufficient compensation for such risks. Khanduja emphasized that the growing income cushion makes it more viable to maintain positions at these yield levels rather than awaiting precise market timing to enter fixed-income investments.