Bond ETFs Surge As Rate Cut Bets Rebuild
The 10-year Treasury slipped back under 4% as traders priced in a December cut.
The benchmark U.S. 10-year Treasury yield dipped below 4% for the first time in a month as expectations for a December rate cut picked up steam. After briefly falling under 3.94% in October, the 10-year surged as high as 4.16% in early November when investors questioned whether the Fed would actually ease policy at its final meeting of the year.
Fed Chair Powell’s comments at the October press conference suggested a cut wasn’t a done deal, and early-month labor data supported that view. But as November progressed, remarks from key Fed officials and fresh signs of labor-market cooling and weakening consumer confidence pushed traders back toward a December cut.
Fed funds futures now imply an 85% chance of a 25-basis-point cut at the December 10 meeting. Traders are also pricing in three additional cuts in 2026, which would push the policy rate down to 2.75–3%.
That’s about 100 basis points below where the 10-year yield is today. If that path materializes, some investors may see value in the 10-year at current levels, given the yield premium over where the fed funds rate is expected to end next year.
Of course, these expectations have been volatile, and upcoming labor or inflation data could move the outlook again.
Despite the swings, it’s been a strong year for U.S. bonds. The iShares 7–10 Year Treasury Bond ETF (IEF) is up about 9% in 2025, while the Vanguard Total Bond Market ETF (BND) has gained 7.6%.
Flows have been robust across fixed income. U.S.-listed bond ETFs have taken in $372 billion this year. Leading the pack are the iShares 0–3 Month Treasury Bond ETF (SGOV) with $34.1 billion of inflows, BND with $18.2 billion, IEF with $12.2 billion, the Vanguard Total International Bond ETF (BNDX) with $11.2 billion, and the iShares Core U.S. Aggregate Bond ETF (AGG) with $10.6 billion.
