Why Bonds May Struggle in 2025—and What It Means for Your Portfolio
For decades, bonds were the go-to tool for generating steady income and reducing portfolio risk. But as we look ahead to 2025 and beyond, there are some real challenges on the horizon for the bond market that investors should be paying attention to.
Here’s what’s going on—and what it could mean for your long-term strategy.
💥 $9 Trillion in Bonds Are Coming Due
In 2025, approximately $9 trillion in U.S. government bonds are set to mature.
That means they’ll need to be refinanced—at today’s much higher interest rates. This drives up the government’s debt-servicing costs and pushes a huge wave of new supply into the bond market.
More supply + fewer buyers = pressure on prices.
🌍 Foreign Demand Is Drying Up
For years, foreign countries helped support U.S. bond prices by consistently buying Treasuries. That trend is changing—and fast. Currently, foreign investors and central banks own over 30% of outstanding US Treasury debt.
🇯🇵 Japan Is Backing Off
The Bank of Japan is ending its yield curve control policy, allowing Japanese interest rates to rise. That means Japanese investors have less incentive to buy U.S. bonds, since they can now earn better returns at home.
🇩🇪 Germany and NATO Nations Are Reallocating
In response to rising geopolitical tensions, Germany and other NATO-aligned countries are increasing defense spending. This shift means more capital is staying within Europe and less is available for buying U.S. Treasuries.
🇨🇳 China Is Going Inward
China is shifting away from its export-heavy economic model and focusing more on domestic consumption. This reduces its need to buy and hold U.S. dollars—and by extension, U.S. bonds. Add in rising tensions over Taiwan, and Chinese demand for Treasuries is becoming even less reliable.
📉 The Supply-Demand Imbalance
So, if foreign buyers are stepping back—who’s going to buy all this new debt?
U.S. banks? They’re still scaling back after the 2023 banking turmoil.
Corporations? Most are opting for shorter-term, higher-yielding options or real asset investments.
Retail investors? Unlikely to absorb much of the new supply given stock market enthusiasm and inflation concerns.
The bottom line? There may not be enough demand to meet the wave of bond issuance heading our way.
🧩 What Happens Next?
If demand doesn’t keep up, the government will have to make U.S. bonds more attractive—which means offering higher yields. That might sound good at first, but here’s the catch:
Higher yields = lower bond prices, especially for longer-duration bonds.
It puts upward pressure on borrowing costs throughout the economy.
And if the bond market breaks down again, the Fed might be forced into another round of quantitative easing—but only in a crisis scenario.
In short: volatility ahead.
🛡️ What You Can Do
Now more than ever, it’s important to rethink how fixed income fits into your portfolio.
At Forecast, we’re risk managers first. We understand that today’s markets require more than a cookie-cutter 60/40 strategy. Whether it’s reallocating to alternative income sources like private credit or building portfolios that can weather interest rate shifts, we help our clients stay prepared—not surprised.
Let’s talk about how to build a more resilient portfolio for the road ahead.
