Investors poured money into U.S. long-term bond funds in May, reversing the sharp withdrawals seen in April. This shift suggests that people are looking for the safety of higher-yielding debt amid concerns about trade tariffs, inflation, and rising fiscal deficits.
According to Morningstar data, long-term bond funds attracted $7.4 billion in May. This was the biggest monthly inflow in over two years. In contrast, these funds had faced heavy outflows just a month earlier in April.
Short-term bond funds, which had seen strong inflows previously, saw $5.8 billion in outflows in May. Meanwhile, intermediate-term bond funds pulled in $4.2 billion during the same period.
Among specific funds, the iShares 20+ Year Treasury Bond ETF led the way, gaining $4.3 billion in inflows. The iShares 10-20 Year Treasury Bond ETF and the iShares 7-10 Year Treasury Bond ETF also performed well, attracting $1.2 billion and $625 million, respectively.
U.S. posted a $316 billion budget deficit in May, the third largest monthly shortfall in history. Despite a record $23 billion in tariff revenue—a 270% jump from last year—it wasn’t enough to balance the $687 billion spent during the month. So far in fiscal year 2025, the total deficit has reached $1.37 trillion. Over the past 12 months, the gap stands at $2 trillion, or 6.7% of GDP. On a positive note, interest payments fell 10% to $92 billion.
This shift in investor behavior shows a clear move towards longer-duration bonds, possibly reflecting growing caution in the market.
