Treasuries Poised for Third Quarter of Gains as Shutdown Looms

Treasuries are poised for a third consecutive quarter of gains, with a 1.5% return this quarter, as the looming US government shutdown and potential economic slowdown drive demand for safe-haven assets. This performance contributes to a year-to-date return exceeding 5% through Q3 2025, positioning Treasuries for their strongest annual showing since 2020.

Analysis

U.S. Treasuries are concluding a third consecutive quarter of gains, driven by increasing investor demand for safe-haven assets amid the growing threat of a U.S. government shutdown. The market is pricing in the potential for the shutdown to slow economic growth, a dynamic that has caused yields to fall and boosted bond prices. According to a Bloomberg index, the Treasury market has generated a 1.5% return for the quarter, contributing to a year-to-date return of over 5% through the first three quarters of 2025. This performance positions the asset class for its strongest annual return since 2020, underscoring a significant shift toward risk-off positioning in the face of fiscal policy uncertainty.

Key Decisions for Investors

• Investors should consider maintaining long positions in Treasuries to capitalize on the flight-to-safety trend driven by the potential government shutdown, which is currently suppressing yields.
• It is crucial to monitor legislative developments closely, as a swift resolution to the budget impasse could trigger a rapid reversal in sentiment, leading to a spike in yields and a sell-off in bond holdings.
• Given the strong year-to-date performance, Treasuries serve as an effective hedge against equity market volatility that may intensify should an economic slowdown materialize from the shutdown.