The onset of aggressive U.S. tariffs at the beginning of the second quarter resulted in pronounced market volatility. As the dollar slid and bond yields rose, investor concerns of diminishing foreign investor demand for U.S. bonds grew. However, these fears may be unfounded, at least for now, according to Neuberger Berman.
Foreign investment into U.S. Treasuries currently makes up almost one-third (30%) of outstanding Treasuries. As such, a flight from Treasuries by international investors could have significant repercussions. With the current administration weaponizing tariff rates against a swath of countries, fears of retaliation in the form of Treasury sell-off by foreign governments rose in the second quarter.
That reality has not yet come to pass, according to Ashok Bhatia, CFA, chief investment officer, and global head of fixed income at Neuberger Berman, in a piece written before the U.S. bombing on Iran. At the beginning of the year, the Securities in Custody for Foreign and International Accounts (Treasuries) was $3.26 trillion per data from the Federal Reserve. As of June 18, that amount sat at $3.23 trillion according to FRED data. NB also reported that two weeks after the tariff onset (April 2, 2025), foreign investors scooped up 88% of the 10-year Treasury auction, a record high.
“This data supports our view that reports of the death of ‘American exceptionalism’ are exaggerated and we continue to believe that recent market behavior reflects cyclical rebalancing rather than a structural long-term change,” said Bhatia.
Investing in U.S. Bonds in Challenging Times
Changing global dynamics, escalation of geopolitical tensions on a number of fronts, and interest rate uncertainty create a challenging market environment. Those looking to position more defensively while investing in U.S. bonds should consider the actively managed Neuberger Berman Short Duration Income ETF (NBSD ).
NBSD seeks to generate reliable income by providing an investment-grade, short duration profile for portfolios. Short-term bonds offer reduced-rate risk profiles, while investment-grade bonds generally carry a low credit risk. Combining the two creates reliable income potential for portfolios when market volatility and uncertainty rise.
The fund invests across a variety of sectors and bond types, including fixed- and floating-rate investment-grade bonds, both foreign and domestic. These can include asset- and mortgage-backed securities, collateralized debt obligations (including CLOs), and credit risk transfer securities.
The management team considers qualitative as well as quantitative factors when selecting securities. They search for underpriced bonds, both on a sector level as well as within peer groups. While 80% of the fund comprises investment-grade bonds, up to 20% may be below investment grade. When investing in these junk bonds, the fund managers seek issuers in relatively strong financial health and whose credit scores may increase. NBSD carries an expense ratio of 0.35%.
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