US Bond Funds Face Fifth Weekly Outflow Amid Tariff-Driven Inflation Fears

The U.S. bond market is entering a period of heightened anxiety. By mid-April .2025, U.S. bond funds recorded their fifth consecutive week of net outflows, totaling $10.07 billion—a stark reflection of investor unease over tariff-driven inflation and looming recession risks. This exodus, amplified by soaring Treasury yields and a flight to safety, underscores a pivotal shift in fixed-income strategy.

The Outflow Dynamics: Safety Over Yield

The latest data reveals a bifurcated market. While short-to-intermediate investment-grade funds saw $6.3 billion in outflows, short-to-intermediate government and Treasury funds attracted a record $6.82 billion in inflows. This divergence signals a stark preference for liquidity and capital preservation over yield. Meanwhile, equity funds faced $10.62 billion in outflows, reversing a prior week’s inflow trend, as investors grew wary of equity valuations in a volatile rate environment.

Tariffs and Treasury Yields: A Volatile Cocktail

Analysts attribute the sell-off to fears that U.S. tariffs—particularly those targeting China—will stoke inflation. By mid-April, the 10-year Treasury yield surged to 4.49%, its highest since 2008, as investors priced in rising price pressures.

This spike has reshaped portfolio strategies. Short-term government bonds (e.g., 1–3 month Treasury bills) saw $18.1 billion in inflows through early April—the highest in 2.5 years—as investors sought shelter from duration risk. In contrast, long-term Treasury funds, such as the Vanguard Long-Term Treasury Index Fund, fell 3.45% in April, underperforming their short-term counterparts.

Cross-Asset Fallout and Retail Sentiment

The broader market is not immune. High-yield corporates and emerging market bonds faced $6.5 billion and $5 billion in outflows, respectively, as risk aversion mounted. Even municipal bonds, traditionally a haven, saw $1.3 billion in ETF outflows amid rising yields and concerns over new issue supply.

Retail investors, too, are tilting defensive. Analyst Steven Roge of R.W. Rogé & Co. notes that investors are avoiding long-term bonds due to the “narrow yield advantage over short-term options” and uncertainty over Fed policy. Money market funds, once a refuge, also faltered, with $131.74 billion in record outflows as yields on short-term Treasuries became more attractive.

Analyst Forecasts: A Wait-and-See Stance

Brian Huckstep of Advyzon Investment Management warns that tariff-related recession risks will likely accelerate inflows into short-term government bonds. “Investors are positioning to pivot back to riskier assets once policy clarity emerges,” he says. However, until tariffs stabilize, bond markets will remain volatile.

The Broader Context: Supply, Demand, and Summer Outlook

Fixed-income markets face additional headwinds. Municipal bond issuance grew 15% in Q1 2025 versus 2024, but volatility led to pulled deals. Analysts anticipate improved demand in summer as $100 billion in reinvestment flows materializes. Senior loans, meanwhile, outperformed most sectors, returning 0.01% in April, as their floating rates insulated them from rate hikes.

Conclusion: A Market on Edge

The April 2025 bond market is a study in contradiction. Investors are fleeing risk but remain trapped between inflation fears and recession risks. Short-term government bonds have become the ultimate refuge, absorbing $6.82 billion in inflows even as the 10-year Treasury yield flirted with 4.5%. Equity and high-yield markets face further headwinds unless tariffs are rolled back or the Fed signals decisive action.

The data is clear: until policy uncertainty subsides, capital will remain locked in short-term Treasuries. Investors are not just hedging against inflation—they are preparing for a storm. As Roge succinctly puts it: “Safety is the only yield that matters now.” The bond market’s fifth week of outflows is not a blip but a warning—a signal that confidence in traditional fixed-income assets has eroded, and the next move hinges on Washington, not Wall Street.