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Treasuries Are Delivering Best Gains Since 2020. The Party Isn’t Over Yet.

Sep 30, 2025 14:41:00 -0400 by Karishma Vanjani | #Treasuries

When the pandemic hit, investors panic bought toilet paper, Clorox—and Treasuries. (Bloomberg; Dreamstime)

Key Points

U.S. government bonds are crushing it this year, and a looming federal government shutdown increases the odds of further gains as investors buy up the safe asset.

The iShares 20+ Year Treasury Bond exchange-traded fund, a popular long-duration fund, is set to finish this quarter up 2.72% on a total-return basis, bringing its year-to-date gain to 5.7%. This modest-sounding gain is a victory for the fund: It’s the best gain for the fund since 2020. That year, it closed up 18% as investors scrambled to seek safety in Treasuries, world’s safest sovereign bonds, during the Covid-19 pandemic.

Yields on longer-dated Treasuries have also declined. Yields fall when investors bid up Treasury prices—the two move in opposite directions. The 10-year Treasury yield has dropped for three consecutive quarters, declining 0.452 percentage points in aggregate. It now trades around 4.1%, after starting the year at 4.6%. The 30-year yield is down 0.085 percentage points year to date. Both are on pace for the largest annual drop in yields since 2020.

The rally comes as the array of tariffs by President Donald Trump’s administration has increased prices of some goods, but has failed to completely redefine inflation’s trajectory. Meanwhile, Treasury Secretary Scott Bessent has kept the supply of Treasuries stable. An anchored supply of debt and contained inflation are both good for the bond market.

Add to that, the Federal Reserve has finally started to cut interest rates to support the labor market, though investors still fear a U.S. economic slowdown—a combination that has amplified demand for safe assets at current rates.

Now, the federal government is likely to shut down beginning at 12:01 a.m. on Wednesday. There could be an 11th-hour federal funding deal that prevents a shutdown, but so far things are at an impasse, with healthcare a major sticking point.

Treasury market investors are going to view this government shutdown through the lens of the effect on the economic outlook and uncertainty around key data releases, wrote Barclays’ strategists.

Consider it an escalation of the already heightened economic uncertainty, which can make Treasuries even more appealing in the near term. After the last government shutdown on Dec. 21, 2018, the iShares 20+ Year Treasury Bond ETF rose 0.3% in the following week. When the government shut down at the start of 2018, the ETF gained 0.4% over the next week. The ETF was lower 0.2% after the 2013 shutdown, according to the Dow Jones Market data team.

On average, shutdowns have delivered a 0.2% gain in the following week for the iShares fund, while it has fallen 1.2% in the month that followed. The fund’s 2002 inception means its historical data only cover the last three government shutdowns.

The 10-year Treasury note, in itself, has tended to gain: The yields have fallen 0.020 percentage points in the week after a shutdown and were down 0.017 percentage points a month later, on average, over the past five government shutdowns since 1995.

A lengthy shutdown means the Fed and investors would be flying blind as they wait for furloughed workers to come back and offer data on the economy at this critical juncture. Recent reports have shown weakness in the labor market as the pace of hiring has slowed.

“The obvious question is how long will the federal government be shuttered, and will the administration use this as an opportunity to permanently reduce the size of its labor force?,” wrote Ian Lyngen, rate strategist at BMO Capital Markets. “We are not anticipating any clarity on either issue at this stage.”

Write to Karishma Vanjani at karishma.vanjani@dowjones.com.