US Treasuries Trail Every Major Bond Market but Japan Since 2025

US Treasuries have underperformed every major government bond index except Japan since President Donald Trump's inauguration, weakening the bond-market scorecard that Treasury Secretary Scott Bessent has used to defend the administration's fiscal agenda.

MarketWatch's comparison of government bond indices shows the underperformance has persisted since January 2025, eroding the argument that US debt remains the world's benchmark safe asset. The lag spans the full maturity spectrum, with the scorecard Bessent has cited as evidence of market confidence in US fiscal policy now pointing the other way.

The underperformance comes as the administration's tax cuts and spending plans have widened the deficit, raising questions about the pace of debt issuance and the path of inflation. Persistent weakness signals rising concern over the US fiscal trajectory, and the stakes are high: continued underperformance could pressure long-end yields, push up federal borrowing costs, weigh on the dollar, and drag on equity valuations, while steering global capital toward non-US fixed income.

The Cross-Asset Transmission

The Bessent scorecard, named for the Treasury secretary who has argued that market pricing validates the administration's approach, has been a recurring reference point in Washington's fiscal debate. Its deterioration marks a shift from the early months of the administration, when Bessent framed strong demand for US debt as proof that investors backed the policy mix.

The underperformance relative to global peers is notable because US Treasuries typically command a premium as the deepest, most liquid government bond market. When that premium erodes, it suggests investors are demanding additional compensation for holding US debt, a dynamic that historically has accompanied widening deficits and rising inflation expectations.

For global investors, the divergence has made non-US fixed income relatively more attractive. Government bond markets in Europe and elsewhere have outperformed US Treasuries over the same period, drawing flows that might otherwise have gone into US debt. Japan is the exception, where domestic policy dynamics have kept its bond market at the bottom of the pack.

The transmission to other assets is the key risk. If US yields continue to lag or rise relative to peers, the dollar tends to weaken as foreign buyers demand a larger currency-hedging premium. Weaker dollar dynamics can feed into import prices and complicate the Federal Reserve's inflation fight, while higher long-end yields raise the cost of servicing the federal debt.

The last time US Treasuries underperformed this broadly relative to global peers was during periods of acute fiscal stress, when investors questioned the sustainability of the debt trajectory. The current episode shares a common thread: a widening deficit and heavy issuance schedule that test the market's appetite for US paper.

Looking ahead, the trajectory depends on the pace of issuance and the path of inflation. If the administration's policies keep the deficit wide and the Fed holds rates higher for longer, the underperformance could persist, keeping pressure on long-end yields and the dollar. If fiscal consolidation gains traction or inflation cools, the premium on US debt could rebuild.

For now, the scorecard that Bessent has wielded as a defense of the administration's fiscal agenda is pointing the other way, and the market's verdict is being felt across rates, currencies, and equities.

This article is for informational purposes only and does not constitute investment advice.