JPMorgan CEO Jamie Dimon said this week he would not buy long-dated U.S. Treasury bonds, and the data shows many investors had already made that same call long before he said it out loud.
In an interview with CNBC contributor Wilfred Frost on Monday, Dimon said that in addition to stocks trading at valuations he would not touch, he also had no interest in long-dated government bonds. "The 10-year bond should probably be at 4% to 4.5%," he said.
The 10-year Treasury is currently yielding 4.6%, according to CNBC. That yield has moved higher for most of the year as the market shifted from expecting the Federal Reserve to cut rates to pricing in the possibility of a hike. When yields rise, bond prices fall. Broader concerns about federal spending levels and the deficit have added to the pressure on long-dated bonds.
Even if inflation returns closer to the Fed's 2% target, Dimon said he does not see meaningful price upside for long-dated government bonds.
Investors appear to have drawn their own conclusions. ETF flow data over the past year shows a strong and sustained move toward the short end of the Treasury market. The iShares 0-3 Month Treasury Bond ETF, ticker SGOV, has taken in $47.5 billion in net inflows this year, more than any other bond ETF, according to data from ETFAction.com. The fund has grown to nearly $100 billion in total assets, making it the third-largest bond ETF overall. Only the Vanguard Total Bond Market ETF and the iShares Core US Aggregate Bond ETF are larger.
SGOV ranked fifth among all ETFs in total flows for the month of June, putting it in the same company as the largest S&P 500 index funds in the country. The Vanguard Total Bond Market ETF and the iShares short-term fund were the only fixed-income products to crack the top 10 across all ETFs for flows over the past year.
The broader ETF market hit a milestone at the midyear mark, surpassing $1 trillion in assets. Equity ETFs captured nearly half of that total, with investors continuing to add record sums to stock funds. But even as equities attracted capital, the parallel rush into short-term Treasuries showed that many investors were hedging.
The preference for short-term Treasuries is not a new idea. Warren Buffett backed the approach in his 2013 annual letter to Berkshire Hathaway shareholders, and the logic has only grown more relevant as uncertainty around rate policy has increased.
As long as the risk of a rate increase remains on the table and the inflation outlook stays murky, analysts expect long-dated Treasury prices to remain under pressure.
