Investors don't think the safest bonds of all are a sure thing anymore

• With deficit concerns swirling, the market for the safest government bonds has been volatile.
• Bloomberg reported on Monday that top fixed income firms are staging a "buyers' strike."
• Investors are hesitant to buy bonds with long maturities amid doubts about the US fiscal position.

A corner of the ultra-safe US Treasury market is losing its shine amid concerns about America's long-term fiscal health.

It's an increasingly worrisome situation given the importance of Treasurys as a component of long-term portfolios for millions of Americans, as well as their role as an investment safe haven during times of turbulence.

The market for US bonds with the longest maturities has seen a pronounced slowdown in the last few weeks. Bloomberg wrote on Monday that top fixed income firms, including Pimco and Jeffrey Gundlach's DoubleLine Capital, have been staging a "buyers' strike" of 30-year debt in favor of shorter-dated bonds.

It continues a trend of investors balking at the idea of essentially lending the US government money for decades. A weak auction of 20-year bonds last month saw tepid demand, resulting in the highest yield on the bond since 2020.

Pimco was already whittling its exposure to longer-dated bonds, it wrote at the end of 2024.

"We have been reducing allocations to longer-dated bonds, which we find relatively less attractive. Over time, and at scale, that's the kind of investor behavior that can fulfill the bond vigilante role of disciplining governments by demanding more compensation," the bond firm wrote at the time, adding it was seeing better risk-reward in bonds with shorter maturities.

Indeed, the bond vigilantes that Pimco hinted at have been credited with sending yields higher this year amid trade war and deficit angst.

And more recently, KKR warned that investors shouldn't count on government debt to be the "shock absorbers" that they've relied on to shield them from volatility in the past.

In fact, the market for the debt has been so volatile that it's possible the US Treasury could reduce or even cancel future sales of 30-year bonds to stabilize yields, JPMorgan Asset Management's fixed income head, Bob Michele, said in a TV interview last week. Michele added that the 10-year and 30-year bonds are trading more like risk assets.

"I'm concerned it's going to get worse before it gets better," Michele said of the bond market volatility.

The next auction of 30-year bonds is scheduled for June 12.

The 30-year yield is back below 5% this week after climbing above that threshold to the highest level since 2008 in May. However, the concerns that drove yields up haven't abated.

America's fiscal position is still an issue, and the GOP budget bill that passed through the House of Representatives in May could add trillions to the national deficit. Meanwhile, the US is now without a top-tier credit rating after Moody's downgraded its government debt in May.

"We have witnessed what can happen with interest rates if investors are concerned about the fiscal health of an economy," Verdence Capital Advisors CIO, Megan Horneman, said in a recent note. "It is important to remember that long-term rates are tied to net interest costs and many loans, especially mortgages." She added that the coming 30-year auction would be highly important.

But it's not just the US that's seeing investors demand more compensation to hold long-term debt. Governments around the world are seeing yields spiral higher while investors protest heavy government spending and a rapid pace of borrowing.