Investors pull billions from long-term US bonds amid fiscal jitters and Trump tax plan

Investors are exiting long-term US bond funds at the fastest pace since the pandemic-induced financial turmoil of early 2020, driven by intensifying concerns over America’s ballooning debt and the fiscal implications of President Donald Trump’s proposed tax overhaul. According to EPFR data analysed by the Financial Times, nearly $11 billion has been pulled from long-dated US bond funds so far in the second quarter of 2025.

This dramatic shift reverses the average $20 billion of inflows seen across the previous 12 quarters, marking a decisive turn in investor sentiment toward one of the world’s most vital debt markets. The outflows span both government and corporate bond funds and highlight growing anxiety over the long-term outlook for US fiscal sustainability.

Trump tax plan triggers fresh debt fears

Much of the market unease is tied to Trump’s “big, beautiful” tax bill, which is under review in Congress. Independent analysts warn the proposed cuts would significantly increase the US deficit over the next decade, potentially adding trillions to the national debt. That would require the Treasury Department to ramp up bond issuance — a prospect that has spooked fixed-income investors already wary of the nation’s fiscal path.

While the White House argues that higher economic growth and tariff revenues will offset any debt increase, bond markets remain unconvinced. “There is a lot of concern domestically and from the foreign investor community about owning the long end of the Treasury curve,” said Bill Campbell of DoubleLine.

Inflation fears compound the flight from long bonds

At the same time, Trump’s aggressive trade policies — including sweeping tariffs on key partners — are expected to stoke inflation. For long-term bondholders, inflation erodes the value of fixed-interest payments, making these assets less attractive.

“Inflation is still above target and government bond supply is heavy as far as the eye can see,” said Robert Tipp, head of global bonds at PGIM. “This is driving skittishness about the long end of the yield curve.”

The pressure has already shown up in performance: prices of long-dated US bonds have dropped around 1 percent this quarter, paring deeper losses from April after Trump’s tariff announcements rattled markets.

Investors flock to short-term bonds

In contrast, investors have funnelled more than $39 billion into short-dated US bond funds this quarter. These instruments, less vulnerable to inflation and currently offering attractive yields due to elevated Fed interest rates, are seen as safer bets amid market uncertainty.

Treasuries still core — but caution rising

Despite the upheaval, experts say the role of US Treasuries as foundational holdings in global fixed-income portfolios is unlikely to vanish. However, as Andrzej Skiba of RBC Global Asset Management noted, investors may begin to “demand more compensation” for taking on long-term US debt risk. “We don’t think it’s the end of the Treasury market,” he said. “But even if we don’t see an earthquake coming, you could see tremors.”