Investors are flocking to major short positions in Treasury bonds, following Warren Buffett’s lead.

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Investors consistently monitor bonds and the implications of recent price and yield movements on the economy. Currently, market trends suggest that investors should focus on the shorter end of the fixed-income spectrum.

“There’s lots of concern and volatility, but on the short and middle end, we’re seeing less volatility and stable yields,” Joanna Gallegos, CEO and founder of a bond ETF company, stated. The 3-month T-Bill is currently yielding above 4.3% annualized, the two-year is at 3.9%, and the 10-year offers about 4.4%. ETF flows for 2025 indicate that the ultrashort opportunity is garnering significant investor interest.

The iShares 0-3 Month Treasury Bond ETF and SPDR Bloomberg 1-3 T-Bill ETF rank among the top 10 ETFs in investor flows this year, attracting over $25 billion in assets. Only a leading S&P 500 ETF has seen more new investment inflows this year than the iShares option, according to industry data.

“Long duration just doesn’t work right now,” said Todd Sohn, senior ETF and technical strategist. It appears that Warren Buffett shares this sentiment, with Berkshire Hathaway significantly increasing its T-bill holdings, now owning 5% of all short-term Treasuries, according to a recent report.

“The volatility has been on the long end,” Gallegos commented. “The 20-year has moved from negative to positive five times so far this year.” This bond volatility follows nine months after the Federal Reserve initiated rate cuts, a campaign it has since paused amid inflationary concerns related to tariffs. Broader market worries about government spending and deficit levels, especially with a major tax cut potential on the horizon, have compounded tensions in the bond market.

Long-term Treasuries and corporate bonds have shown negative performance since September, which is notably unusual, according to Sohn. “The only other time that’s happened in modern times was during the Financial Crisis,” he mentioned. “It is hard to argue against short-term duration bonds right now,” he added. Sohn is advising clients to avoid anything with a duration exceeding seven years, which currently yields around 4.1%.

Gallegos has expressed concern that amidst the bond market’s volatility, investors might not be adequately diversifying their portfolios with fixed income. “My fear is investors are not incorporating bonds into their portfolios today, maintaining an equity focus on concentrated indexes overweight in certain tech stocks. They become accustomed to double-digit returns,” she noted.

This year has also seen high volatility in the stock market, with the S&P 500 reaching record levels in February, dropping 20% by April, and then recovering those losses recently. While bonds play a crucial role in long-term investing to safeguard a portfolio against stock corrections, Sohn encourages investors to explore equity opportunities beyond the United States.

“International equities are contributing to portfolios like they haven’t in a decade,” he stated. “Last year it was Japanese equities, this year it is European equities. Investors don’t need to be heavily invested in U.S. large-cap growth at this time.”

The S&P 500 has recorded 20 percent-plus returns for both 2023 and 2024. The iShares MSCI Eurozone ETF has climbed 25% so far this year, while the iShares MSCI Japan ETF has seen over 10% growth this year, with strong performance in the preceding two years as well.

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