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What’s Driving Flows Into U.S. Long Tenor Government Bond Funds

Written By

Dan Buckley

Written By

Dan Buckley

Dan Buckley is an US-based trader, consultant, and part-time writer with a background in macroeconomics and mathematical finance. His expert insights for DayTrading.com have been featured in multiple respected media outlets, including Yahoo Finance, AOL and GOBankingRates. As a writer, his goal is to explain trading and finance concepts in levels of detail that could appeal to a range of audiences, from novice traders to those with more experienced backgrounds.

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Updated

Jun 25, 2025

We have seen a rebound in inflows into U.S. long tenor government bonds in May after a selloff in the previous month. Let’s find out why and consider what could happen in the coming months.

What’s Driving The Rebound Into Duration?

1. Dovish Fed signals – Multiple Fed officials (e.g., Michelle Bowman and Christopher Waller) signaled openness to rate cuts as early as July, indicating that inflation may remain contained and warrant easier policy. A July rate cut is priced into the market as a 21% chance for now and increases to 87% by September.
2. Cooling inflation and softer growth – We’re now firmly expected to be in a cutting cycle. There is virtually no probabilistic pricing of rate hikes in the near-term curve. This causes investors to move toward long-duration Treasuries when the rate structure has a downward bias.
3. Geopolitical safe-haven flows – Mild geopolitical tensions increased demand for US Treasuries, though the Fed’s tone is driving yields more than geopolitics.

The inflows indicate that investors anticipate a slowing nominal growth rate.

Specifically, buying long-duration funds suggests they expect:

• Lower rates ahead, possibly starting around September 2025 (some possibility of July).
• Soft landing risk – Markets see a base case of economic cooling without sharp recession.

Is this a tactical shift following April’s selloff, or the beginning of a more strategic allocation to duration?

Likely both:

• Tactical – April’s selloff (tariffs and concerns over long-term debt) created a dislocation and attractive entry points.
• Strategic – The persistence of dovish signals, subdued economic forecasts (e.g., Fed cut expectations, GDP forecasts revised down), and repositioning by institutional investors hint at a longer-term reallocation.

May’s inflows likely began as more opportunistic but are gradually becoming part of a broader, strategic duration tilt.

Do I expect inflows into long-duration bond funds to continue, plateau, or reverse in the coming months?

Likely points toward plateauing or moderating inflows:

• As Fed guidance solidifies (likely delaying cuts until fall), momentum could slow. May saw big moves; follow‑through could be more subdued.
  Potential reversal risk:
• Longer-dated Treasuries may lose appeal if inflation ticks up again. Longer-term there’s a fiscal imbalance in the US. Either rates need to stay high enough to incentivize buying this debt – of which there will be a lot more of with deficits where they are – or rates stay artificially low from the Fed buying any excess, which involves trade-offs of inflation and currency weakness (all else equal).
• If growth surprises unexpectedly strong, short-term bond funds or risk assets may benefit instead.