When it comes to the bond market, the U.S. Federal government is the big powerhouse. Thanks to the sheer size of the U.S. economy and spending needs, the treasury market is the largest in the world. And given the United States’ taxing authority, treasuries have long been considered “as good as gold” and form the basis for many fixed-income investors’ portfolios. Not only here, but also abroad.
But lately, the fiscal health of the U.S. has started to show some signs of feeling under the weather.
Thanks to these fiscal woes, the type of bonds that the treasury is shifting. For investors, this could all lead to very turbulent waters down the road. The question is whether or not long-term treasury debt still has a place in our portfolios.
The OBBBA & Rising Spending
As many of the provisions in the Tax Cuts and Jobs Act of 2017 (TCJA), enacted during his first term, began to sunset, President Trump launched another round of cuts. Dubbed the “One Big Beautiful Bill Act (OBBBA), the law has a variety of provisions included in the original TCJA as well as additional tax savings and spending plans.
While it remains to be seen if the bill actually helps, analysts have started to really look at the costs of the bill in terms of rising deficit spending. The issue remains that new spending outlays on defense and immigration enforcement, coupled with lower receipts, have the potential to push up U.S. deficits even further.
Excluding the effects of any tariff revenue, the Congressional Budget Office now estimates that the OBBBA tax breaks, coupled with spending increases, will boost the budget deficit by more than $3 trillion over the next 10 years. 1
Those budget woes and fiscal issues are already starting to have their way with how investors perceive U.S. debt.
T-Bill Issuance Grows
That’s an issue for the U.S. Treasury. If you remember, a bond is lending money to an entity in exchange for interest payments. So, the treasury doesn’t want to lock itself into paying a high yield for potentially a decade or more. To counteract that, the treasury has decided to start issuing T-bills and other short-term debt to take advantage of lower short-term rates, which in theory can be rolled over into longer-term debt when yields decline.
Right now, 20% of the U.S. Treasury debt stack is in T-bills. That’s about right where the Treasury Borrowing Advisory Committee (TBAC) suggests is a healthy range to limit deficit variability. However, analysts now predict that the Treasury will raise that to the 23% to 25% range to fund the OBBBA and current fiscal package.
This chart from T. Rowe Price shows the variability of T-bill issuance, which peaked in 2008 at nearly 35%.
Source: T. Rowe Price
The increase in the issuance of T-bills doesn’t seem to be a problem. According to T. Rowe Price, money market funds and cash liquidity vehicles seem poised to gobble up the increase in supply. Looking at the weighted average maturity (WAM) limit of money funds, T. Rowe’s research shows that as of the end of the second quarter, money market funds had an average WAM of 38 days. The limit is 60 days.
The question is, what happens next? Analysts are mixed on the Treasuries plan and the effect of longer-term borrowing costs.
Now that the Federal Reserve has begun cutting rates again, T-bills and their short maturities will be the first to face lower yields. Eventually, as well, the treasury will reach its maximum T-bill issuance and return to the coupon market for its needs.
The issue is that investors remain concerned about the rising fiscal uncertainty and potential end to the United States’ exceptionalism. Despite the Fed cutting rates and pledging to cut further, yields on the 10-year and 30-year have only increased and stayed at elevated levels. Investors have simply demanded more yield to compensate for the risk.
According to State Street, all of these functions will put treasuries on par with those of other developed market nations and reduce the premium that U.S. debt currently enjoys. When looking at term premiums between the 10-yr and 30-yr, the asset manager suggests the U.S. will fall more in line with other developed nations or even see its term premium shrink versus countries like Germany, which have lower debt-to-GDP ratios. 2
All of this isn’t exactly great news for longer-dated treasuries on the market. A significant increase in coupon supply amid heightened worries about the U.S. government’s fiscal position is the perfect storm for sustained yield increase in 10- and 30-year Treasury securities. Bonds already on the market will fall in price to match these higher yields. This could result in major losses for many investors—i.e., pretty much everyone —holding U.S. debt in their portfolios.
Looking Elsewhere
For fixed-income investors, the potential for higher sustained yields and the sudden influx of supplies of U.S. Treasury debt is a troubling sign. One, that could result in hefty losses down the road. Given how much U.S. debt is part of core bond portfolios, many investors- both big and small- could be affected by the change and drop in prices.
However, there is a solution. By redesigning our core bond portfolios and limiting the amount of U.S. treasury debt, investors can score higher yields today and avoid some of the declines later on.
Going global, examining other investment-grade debt sectors, and adopting a more comprehensive return approach could be the way to fight back. Core-plus funds and dynamic bond funds are allowed to explore bonds and allocations not in line with the broader bond benchmarks. These could serve as the new core fixed-income portfolio. At the same time, the number of global bond funds- which look beyond U.S. borders- has become quite a hot spot of investment activity in recent weeks. Ultimately, focusing on capital appreciation and yield could enable investors to achieve good returns in the new environment.
The best part is that all of these ideas are available through low-cost ETFs.
International Bond ETFs
These ETFs are selected based on their ability to tap into various international and global bond sectors at a low cost. They are sorted by YTD total return, which ranges from 2.6% to 19.4%. Their expense ratio ranges from 0.05% to 0.85% and they have AUM between $50M and $106B. They are currently yielding between 2.2% and 5.8%.
| Ticker | Name | AUM | YTD Total Ret (%) | Yield (%) | Exp Ratio | Security Type | Actively Managed? |
|---|---|---|---|---|---|---|---|
| HYXU | iShares Global ex USD High Yield Corporate Bond ETF | $50M | 19.4% | 4.3% | 0.40% | ETF | No |
| FEMB | First Trust Emerging Markets Local Currency Bond ETF | $164M | 19.2% | 5.8% | 0.85% | ETF | Yes |
| IBND | SPDR Bloomberg International Corporate Bond ETF | $384M | 17.1% | 2.5% | 0.50% | ETF | No |
| BWX | SPDR Bloomberg International Treasury Bond ETF | $1.5B | 10.3% | 2.2% | 0.35% | ETF | No |
| CEMB | iShares Emerging Markets Corporate Bond ETF | $380M | 7.9% | 5.1% | 0.50% | ETF | Yes |
| BNDW | Vanguard Total World Bond ETF | $1.3B | 4.7% | 3.3% | 0.05% | ETF | No |
| BNDX | Vanguard Total International Bond ETF | $106B | 2.6% | 2.6% | 0.07% | ETF | No |
Core-Plus & Dynamic Income ETFs
These ETFs were selected based on their low-cost exposure to active bond management within the unconstrained, dynamic, and core-plus sectors. They are sorted by their YTD total return, which ranges from -1.2% to 2.8%. They have expenses ranging from 0.10% to 0.71% and assets ranging from $63 million to $ 18.1 billion. They currently yield between 4.2% and 5.5%.
| Ticker | Name | AUM | YTD Total Ret (%) | Yield (%) | Exp Ratio | Security Type | Actively Managed? |
|---|---|---|---|---|---|---|---|
| JCPB | JPMorgan Core Plus Bond ETF | $5.78B | 2.8% | 5.3% | 0.40% | ETF | Yes |
| BOND | PIMCO Active Bond ETF | $5.5B | 2.5% | 5.3% | 0.71% | ETF | Yes |
| VPLS | Vanguard Core Plus Bond ETF | $138M | 2.5% | 4.8% | 0.2% | ETF | Yes |
| TOTL | SPDR DoubleLine Total Return Tactical ETF | $3.5B | 2.3% | 5.1% | 0.55% | ETF | Yes |
| FBND | Fidelity Total Bond ETF | $18.1B | 2.2% | 5% | 0.36% | ETF | Yes |
| AVIG | Avantis Core Fixed Income ETF | $1B | 2.2% | 5% | 0.15% | ETF | Yes |
| BINC | BlackRock Flexible Income ETF | $8.14B | 2.1% | 5.5% | 0.52% | ETF | Yes |
| FIXD | First Trust TCW Opportunistic Fixed Income ETF | $4.32B | 2.1% | 4.3% | 0.65% | ETF | Yes |
| DBND | DoubleLine Opportunistic Bond ETF | $413M | 2% | 4.8% | 0.45% | ETF | Yes |
| DFCF | Dimensional Core Fixed Income ETF | $243M | 2% | 4.6% | 0.19% | ETF | Yes |
| CGCP | Capital Group Core Plus Income ETF | $4.5B | 1.8% | 4.8% | 0.34% | ETF | Yes |
| VCRB | Vanguard Core Bond ETF | $63M | -1.2% | 4.2% | 0.10% | ETF | Yes |
Overall, the changes in U.S. debt issuance only look to solve a short-term issue. With longer-term fiscal woes on the horizon, many analysts now predict that the rise in T-bill issuance will only make the longer-term road worse. That has big implications for many fixed-income investors. But by getting out ahead of the problem and focusing on non-core bonds and going global, investors may have the ability to win out and prevent losses down the road.
Bottom Line
The Treasury is looking to issue more T-bills to lower its borrowing costs. But with the long-term fiscal woes, that plan may have a limited effect. Longer-term yields are expected to rise. And that’s a big problem for longer-dated treasury securities. Investors would be wise to look elsewhere for their yields now.
1 T. Rowe Price (July 2025). How will the boom in U.S. government debt supply affect markets?
2 State Street (September 2025). Bond market shifts signal waning US advantage
