Main Street Investors Break Records in Rush for U.S. Government Bonds

The meme stock is fading. Cryptocurrencies have cooled. The latest hot investment for individual investors: US government bonds.

Lured by higher interest rates and spooked by the stock market turmoil, investors poured a net $20 billion into mutual funds and exchanges, focused on buying conventional U.S. Treasuries. for a four-week period ending May 25, according to Refinitiv Lipper. That marked the largest infusion over a 4-week period in records from 29 years ago.

That was just the beginning. Individual investors grabbed $928 million in two-year bonds in a recent government debt auction, the highest in more than 15 years, opting for partial bonds to avoid management fees. They have also besieged the Treasury Department in pursuit of government inflation-linked savings bonds, which currently pay an initial interest rate of 9.62%.

So many people wanted to buy so-called I bonds that the agency moved staff to a support center and made changes to the Treasury direct-to-consumer website, and apologized. because of unusually long wait times. Bond sales through Treasury, capped at $10,000 per person per year, have totaled $14.9 billion in net since November, about $6 billion more than 20 years. previously combined.

Jerry Gray, a recently retired resident of White Pigeon, Mich., is among those who have turned to government bonds in recent months. Having previously worked in sales at a trust-based asset management firm, Mr. Gray bought some I bonds in December after learning of their high interest rates.

More recently, he started buying Treasury bills through Treasury after talking to bankers at his Kiwanis club about the bleak outlook for deposit rates, which had dragged follow bond yields because many banks have run out of deposits.

“The rate is going up so fast, I want to push the wave,” he said.

The increased interest from individual investors is particularly notable as bonds had one of their worst years ever in 2022.

Expectations that the Federal Reserve will continue to raise interest rates aggressively to combat inflation have driven down current bond prices, reflecting the risk that new Treasuries will be issued with larger coupons. However, that has boosted yields on Treasuries – increasing their appeal to investors who think their price won’t fall further or plan to hold them to maturity.

Notably, stocks – which are also vulnerable to rising interest rates – have even outperformed bonds this year, prompting large outflows of stock funds in recent weeks.

Allan Roth, a financial planner with Wealth Logic, says it makes sense to buy stocks now after their prices have dropped, but it’s only natural that people “run to safety” instead. security” and buying bonds is “low fruit” for investors. their high interest rates.

The changing attitudes of individual investors are often not enough to change the price of government bonds. Much of the demand for Treasuries comes from other sources, such as hedge funds, pensions and insurance companies, as well as a wide variety of overseas buyers.

Cash flows into different types of funds can also work for purposes that cross each other. Overall, net inflows into US Treasury funds have totaled $52 billion this year, according to Refinitiv Lipper. However, there was a net outflow of $28 billion from so-called core and core plus bond funds, which tend to buy substantial amounts of Treasuries, along with riskier bonds.

Steady inflows into government bond funds earlier this year failed to prevent a massive sell-off in Treasuries that lifted the benchmark 10-year yield from 1.496 percent at the end of December to 3.124% by the end of December. May 6.

However, record cash flows into the fund in recent weeks have coincided with a broad increase in demand that has dragged the 10-year yield back to 2.842% on Tuesday.

Wall Street analysts are currently mixed on the outlook for government bonds. Most agree that short-term rates will continue to rise as the Fed continues on its current path. However, differences arose over whether the Fed would be forced to raise interest rates higher than investors expected to contain inflation, sending bond prices falling once more.

Anyone who buys a government bond when it’s issued and holds it to maturity is guaranteed a return proportional to the bond’s interest rate, not in the event of a government default. But those who need cash sooner can still suffer losses, as this year has shown.


What is your approach to bonds in today’s economy? Join the conversation below.

As of Monday, the broad US Treasury ICE BofA index, with an average maturity of about eight years, has delivered negative 8% returns this year. Even an index of generally steady short-term Treasuries, with an average maturity of 1.8 years, has lost 2.2%, reflecting a sharp correction in interest rate expectations this year.

Still, that historically bad performance is better than the S&P 500 index, which has fallen 13% this year, or the ICE BofA index of investment-grade corporate bonds, which has returned negative 12% . Through Monday, the broad index of Treasuries was back 0.6 percent in May as bond yields stabilized.

Write to Sam Goldfarb at

Before that: The sell-off continued to wreak havoc on major US stock indexes, with the S&P 500 index entering bear market territory for the first time on Friday in more than two years. WSJ’s Caitlin McCabe looks at some of the key drivers behind market volatility. Photo: John Minchillo / Associated Press

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