The US Treasury’s standing because the world’s lowest-cost greenback borrower is dealing with a recent problem from international growth banks, as considerations over the Trump administration’s erratic policymaking enhance the enchantment of other haven belongings.
Greenback bonds issued by the likes of the World Financial institution, the European Funding Financial institution and Germany’s state-owned KfW have rallied in latest months as buyers look past US Treasuries, historically common as haven belongings throughout instances of world stress.
Because of this, yields on this so-called sovereign, supranational and company (SSA) greenback debt have fallen nearly into line with these on US authorities bonds, a pattern that has continued even because the battle within the Gulf has roiled markets.
“The Trump administration’s coverage volatility is making buyers cautious of holding US belongings,” mentioned Steven Johnston, head of money charges buying and selling at Mizuho.
“Greenback SSAs are the golden baby on this atmosphere — they let buyers keep within the US forex whereas minimising publicity to idiosyncratic US danger.”
Traders sometimes demand yields above benchmark sovereign bonds to carry the money owed of different debtors. The yields of some SSA greenback bonds over Treasuries have lately fallen to a couple hundredths of a proportion level within the secondary market, whereas some issuers have achieved record-low spreads on new debt within the main market.
Issuers level to US President Donald Trump’s “liberation day” tariff blitz final April as a turning level.
“We’ve seen buyers’ curiosity in our greenback bonds enhance very noticeably after the US first introduced international reciprocal tariffs — notably from consumers in Asia,” mentioned Petra Wehlert, head of capital markets at KfW.
Whereas buyers weren’t essentially promoting Treasuries, she added, a few of them had been not reinvesting their redemptions completely in Treasuries as they typically did prior to now.
“They want publicity to US {dollars} however they’re more and more trying to different belongings to fulfil it — together with our devices,” she mentioned.
Market volatility brought on by the Iran battle has not dented investor demand for such debt, mentioned Jez Walsh, head of the debt capital markets syndicate desk at Daiwa Capital Markets Europe.
“The market is responding very in a different way to this geopolitical disaster in contrast with the previous,” he mentioned. “Beforehand, we’d have seen a flight to high quality, with buyers piling into Treasuries and SSA spreads widening. This time, it’s been the alternative — if something, spreads have gotten tighter.”
The EIB on Tuesday issued a $4bn, three-year bond that attracted orders in extra of $33bn, a report for SSA issuers at that maturity. It was priced to yield 3.82 per cent, 0.04 proportion factors above comparable US Treasuries.
SSA bonds are issued by non-sovereign public sector entities, starting from giant multilateral organisations to subnational establishments. They sometimes have larger borrowing prices than benchmark authorities debtors such because the US and Germany, reflecting their a lot decrease liquidity and the large powers that governments must service their very own money owed, together with by way of taxation.
The largest issuers, together with the EIB, the World Financial institution and KfW, have top-notch credit score rankings, which have elevated their enchantment to conservative buyers at a time when governments world wide have suffered score downgrades and are flooding bond markets with report issuance.
Investor curiosity on this comparatively area of interest asset class was already excessive earlier than the Iran battle, as fears about Washington’s fiscal sustainability made buyers cautious, with the downgrade of US debt by Moody’s in Could 2025 a lowlight.
“From a fiscal sustainability perspective, it drove the purpose residence that the US is not a protected haven,” mentioned Johnston.
A $4bn, 10-year bond issued by the EIB in February was priced to yield simply 0.05 proportion factors above comparable US Treasuries — its lowest unfold on report for a greenback bond of that maturity, in response to Barclays, which was a lead supervisor on the deal.
SSA issuers are seen as “very steady and [their] web issuance is extra restricted” than some sovereigns, mentioned Lee Cumbes, Barclays’ head of debt capital markets for Europe, the Center East and Africa.
The greenback SSA market isn’t any rival to the US authorities bond market in scale or liquidity. In 2025, the EIB, World Financial institution and KfW collectively raised about $80bn in dollar-denominated debt, in response to Bloomberg information. Contemporary Treasury issuance of comparable maturities was about $4.5tn in the identical 12 months.
For a lot of consumers, one of many key causes to carry SSA bonds traditionally has been that they supply the next yield than authorities bonds with out carrying a lot further danger.
Though this extra yield has shrunk, demand remains to be very sturdy, mentioned Walsh. Partially, buyers say, this is because of shortage worth: the greenback programmes of issuers just like the EIB and KfW are restricted, and symbolize a minority of their issuance, which is weighted in direction of euro debt.
Whereas uncommon, some company greenback bonds — together with these issued by Microsoft and Johnson & Johnson — have briefly traded at decrease yields than Treasuries prior to now.
Some merchants speculate that greenback SSA yields might but fall under these of Treasuries.
However an official at a big supranational issuer mentioned that such a situation would require an additional “substantial erosion of belief” in US belongings.
“We’re not there but,” the official mentioned, whereas including that sustained demand for greenback SSA bonds within the face of tighter spreads instructed there was already “trepidation within the system”.
“We could discover out quickly sufficient the place the ground is,” the official mentioned.
Further reporting by Michelle Chan in New York
