U.S. Banks have significantly reduced their holdings of long-dated bonds, reaching the lowest share of securities with maturities exceeding five years since at least 2014, according to a Risk Quantum analysis of 56 reporting banks. Long-term securities accounted for 52.9% of total holdings at the complete of 2025, a decrease of 108 basis points from the previous quarter.
The shift indicates a broader trend among lenders toward prioritizing shorter-dated instruments. Simultaneously, holdings of medium-term securities – those maturing between one and five years – have reached record levels, with their share hitting a decade low. This repositioning comes as the Federal Reserve navigates a complex interest rate environment and as the bond market experiences increased volatility.
Recent market activity suggests banks are responding to signals from the yield curve. A Reuters explainer published earlier this month noted that a steepening U.S. Yield curve can have implications for bank profitability and the overall economy. The movement towards shorter-dated bonds may be a strategy to mitigate risk associated with potential interest rate fluctuations, as shorter-term bonds are generally less sensitive to rate changes than longer-term ones.
The change in bank portfolios also occurs against a backdrop of evolving monetary policy. Quantitative easing (QE), implemented in recent years, significantly altered the bond market landscape, as highlighted by a report from the UCLA Anderson Review. The unwinding of QE and subsequent adjustments to interest rates are likely influencing banks’ investment strategies.
According to a report from Barclays Investment Bank, the “term premium” – the extra yield investors demand for holding longer-term bonds – is making a comeback. This suggests increased investor caution regarding longer-dated debt, potentially contributing to the banks’ shift towards shorter maturities.
Large banks are also finding opportunities to profit from the current bond market conditions. The Wall Street Journal reported that increased market angst is creating trading opportunities for major financial institutions. Whereas the Risk Quantum analysis doesn’t detail profit motives, the portfolio adjustments align with a strategy to navigate and potentially capitalize on market uncertainty.
U.S. Bank published an article noting how changing interest rates affect bonds. The article did not provide specific details on bank behavior, but confirmed the general principle that bond values and yields are inversely related to interest rate movements.
