United States Treasury bonds have traditionally been considered the gold standard of low-risk investments. Backed by the full faith and credit of the U.S. government, they offer reliable interest payments and a sense of security for investors. With the recent proposal of reciprocal tariffs by President Trump and ensuing global economic uncertainty, many investors are questioning whether Treasury bonds still live up to their reputation as a safe haven asset.
In this article, you’ll learn whether U.S. Treasury bonds are still a low-risk investment based on their attributes, risk factors, and your investor profile.
U.S. Treasury Bonds In The Current Economic Climate
The current economic climate has prompted volatility in the stock market and uncertainty in U.S. Treasury bonds as a safe harbor, given the risk of global trading partners selling their considerable holdings in Treasurys. The bond market has also experienced turbulence given inflation concerns and the Federal Reserve’s decision to pause rate cuts this year to prevent further inflation.
Despite these concerns, Treasury bonds have attracted investors nervous about the prospect of a recession and looking for reliable returns. Treasury yields are elevated with a 10-year yield above 4%, as of April 8th, 2025, which is historically high and indicates investor uncertainty. With the high liquidity of the U.S. Treasury market, it’s also likely that the limited dumping of Treasurys by a trading partner would not be calamitous for the market, but of course, Treasury bond yields and demand can be further influenced by the volatile global economic environment.
Why Treasury Bonds Are Considered Generally Safe
Treasury bonds are generally considered safe because they’re backed by the full faith and credit of the United States, boast a highly liquid market and are viewed as a safe harbor during market volatility. While no investment bears zero risk, Treasurys are generally considered to be a low-risk, reliable investment.
Government-Backed Security
The primary reason for Treasury bonds’ classification as a generally safe investment is because these bonds are a government-backed security and the U.S. government has never defaulted on its debt obligation. This track record provides investors with confidence given the size and relative stability of the U.S. economy. The United States’ high GDP and high tax revenue also supports the government’s ability to repay debt obligations.
Liquidity and Market Stability
Another reason U.S. Treasury bonds are considered as a safe investment is that its market is the most liquid bond market in the world with hundreds of billions of dollars traded in it weekly. This liquidity allows investors to exit positions quickly without drastic price changes and other investors waiting in the wings to purchase these securities. Treasurys are commonly used as collateral in institutional finance because of their price stability and security.
Low Credit Risk
Finally, Treasury bonds are deemed as generally safe because they’re deemed as investment grade and at low risk of default by credit rating agencies like Fitch. The U.S. has continued its commitment to repay debt and demand has remained high even during periods of economic instability like the March, 2020 stock market crash. While bonds like corporate or municipal bonds carry credit and default risk, Treasurys are considered a low-risk investment.
Factors That Can Impact Treasury Bond Risk
U.S. Treasury bonds are considered low risk but these securities are not risk free. Market forces can affect Treasury performance and investor returns. Some of the key risks to Treasurys include fluctuations in interest rates, inflation and global economic changes which can affect demand and pricing.
Interest Rate Risk
One of the primary factors which can affect Treasury bond risk is interest rates. When interest rates rise, the price of existing bonds fall. For example, in 2022 to 2023, the Federal Reserve raised rates to combat inflation which caused long-duration Treasury prices to drop significantly. This left investors who had bought 30-year bonds in lower-rate environments to incur paper losses as the new bonds were issued with a higher yield.
Inflation Erosion
Inflation can also erode the purchasing power of fixed interest payments from Treasury bonds. For example, if inflation is at 5% while a bond pays 4%, the real return is negative. With the inflation rate predicted to be around 2.6% in March 2025, investors will have to determine if the real return is sufficient for investment.
Global Economic Changes
A variety of global economic changes can also affect Treasury risk. For example, the breakout of war, major global buyers of Treasurys experiencing economic slowdown, and changes in the global supply chain can all affect Treasury markets. If major Treasury buyers sell their bond holdings to stabilize their currency or fund projects, Treasury yields can rise as prices fall. As mentioned, the threat of trade war and the tariff debate can also negatively affect demand for Treasurys.
Are U.S. Treasury Bonds Still A Low Risk Investment?
U.S. Treasury bonds remain one of the lowest-risk investments available to investors given stock market volatility, the liquidity of the Treasury market and the continued credit-worthiness of the security. Treasurys’ market value can still fluctuate and could be vulnerable to macroeconomic factors like the potential for a trade war with China. Historically, recession fears and volatility have caused inflows into Treasurys as there are few lower-risk investments available to investors.
For conservative investors who hold Treasurys to maturity and don’t sell short of maturity, the risk of loss is minimal. While these bonds are not without risk, they are still a low-risk investment and would be a good fit for investors seeking a more secure return in their portfolio.
Should You Still Invest In Treasury Bonds?
Treasury bonds could be a desirable investment for you depending on your investment time horizon, appetite for risk, and the range of return you desire. If your main goal is capital preservation while earning some income, Treasury bonds are likely the right fit for you. Treasurys would also be a good fit if you’d like to diversify an equities-heavy portfolio and would like to weather recent market volatility.
For younger investors with longer time horizons who prioritize growth, Treasurys may be a less-desirable investment. For those who are interested in shorter-term Treasurys or T-bills, this guide on buying Treasury bills will be useful.
Bottom Line
Treasury bonds can be affected by market factors but remain one of the lowest-risk investments available to investors given their U.S. government backing and high liquidity. While interest rates and inflation can affect their performance, they are an excellent investment for conservative investors. By learning more about Treasurys including how to allocate appropriately, time purchases, and maintain a longer-time horizon, investors can benefit from Treasurys even during volatile economic periods.