Major global asset managers are warning about a potential decline in US Treasury investments during the 2026 fiscal year. Financial firms such as BlackRock and LPL Research note that while government bonds have usually been safe, current fiscal trends are creating serious concerns.
Investors are becoming wary of the large amount of new debt entering the market to finance the federal deficit, fearing that oversupply may lower the long-term value of these important holdings.
The main reason for weakening investor sentiment is the large number of US Treasury bonds planned for issuance. As the US debt-to-GDP ratio approaches historic post-war highs, the market demands a higher "term premium" to justify holding long-term debt. As a result, many institutions are shifting to neutral or underweight positions to avoid possible price declines in longer-term maturities.
Inflation staying above the 2% target has made it difficult for the Federal Reserve to ease policy. Although the Fed could make small rate cuts to help the job market, Treasury yields will likely remain high, near 4.5%, since core inflation stays stubbornly elevated. This environment raises interest rate risk, making short-term fixed-income investments more attractive than volatile 10-year or 30-year benchmark bonds.
In reaction to these bond market trends, asset managers are shifting away from pure government exposure. Companies such as PineBridge Investments suggest focusing on “carry,” the income earned from holding a bond, instead of hoping for capital gains. Many managers now favor investment-grade corporate credit and emerging market debt, as these choices provide better risk-adjusted returns than traditional federal securities.
Modern fixed-income strategies are much more flexible than earlier methods. Investors today rely on advanced tools to protect against the "K-shaped" economic recovery, where wealthy households succeed while lower-income groups lag. This gap makes active management crucial because simply following government indices may produce weaker overall returns.
The market’s evolution indicates that the "buy and hold" strategy for US Treasury bonds is becoming less attractive. As federal debt hits record highs and the "One Big Beautiful Bill" Act drives massive government spending, investors are moving towards active management.
Current trends suggest that the most successful portfolios in 2026 will likely use Treasuries as a tactical tool rather than a permanent sanctuary. This approach is important because it focuses on income stability and capital preservation instead of relying on the declining safety of government-backed debt.