The bonds are ok: Treasury market demand is fine

June 13, 2025

Before we get to the main event, I wanted to point out this nugget that showed up in the Wall Street Journal yesterday: more than 8 in 10 investment advisors are now outsourcing investment decisions for at least some of client assets.¹ This seems odd to me, that the core purpose of an investment firm is now being outsourced to someone else.

This brings up an interesting thought though, as One Day In July favors passive indexed investments. Somewhere in the investing process, there are active decisions made, always. It's just a matter of at which level in the investing stack the decision becomes active. We feel like an optimal approach is at the fund level. This allows us to garner the performance and low costs of passive investing while maximizing diversification, risk reduction, and customization.

Before we get to the bond market, I want to discuss how information enters One Day In July. Many of you have asked about this. Let's look at the media business: there are three reliable ways to make money in the media industry. 1. Be named Google or Facebook, and either scrape the Internet to get free seed content or get your users to do it for you, aggregate that content, and sell ads on it. 2. Play to already-established political partisanship of your readership and use ads or get paid a relatively low monthly fee so users can keep seeing/reading things they already believe or 3. Be in financial media and get paid a premium subscription rate because subscribers need to know what is happening to make decisions.

These have been pretty good business models, especially #1. We have used #3 in the form of Bloomberg and Wall St Journal subscriptions (in addition to other sources, generally individuals or analysts posting on their own). Both firms clearly break out news from opinion (one tilts left, one right on the opinion side) and are considered reliable sources. But financial news headlines, even a bit in these publications, seem to be increasingly sensationalized.

The Treasury market is a good example. Many headlines this year implied doom was at hand. But if you look at the actual data, that's not the case. Here is Treasury auction demand from the spring of 1999 to the spring of 2025 on the 10-Year Treasury note:

The vertical lines on this graph show the size of the auction, defined by the numbers on the right side of the graph, and the squiggly line is the bid-to-cover ratio, defined by the numbers on the left side of the graph. The bid-to-cover ratio is the total of number of bids received divided by the total number of securities sold. Notice that recent demand for Treasuries has been rising, even on substantially bigger debt offerings! And that story all over the Internet about foreign buyers abandoning Treasuries? Well, a tiny bit, but not in any material way. Demand was over 65% from foreign investors, up 6% from May, and around the one-year average. Though about 2% below the long-term average of 67% foreign demand.

This doesn't mean there are not structural long-term risks in the U.S. government's balance sheet. But in the near term, with over 2.5 buyers for every bond being offered, we are not seeing either domestic or foreign appetite wane.

Dan Cunningham

1. More Financial Advisors are Outsourcing Investment Decisions - WSJ - 6/12/25
2. Graph & Demand Data: U.S. Treasury