Dimon Warns Against Buying Stocks and Long-Term Bonds! Investors Already Flocking to This Asset

According to CNBC, when investors worry about a stock market pullback and want to hedge their portfolios, they typically shift some funds into U.S. Treasury bonds as a 'defensive allocation.' However, if investors agree with JPMorgan CEO Jamie Dimon's recent warnings on both U.S. equities and U.S. Treasuries, it may be wiser to focus on short-term U.S. bonds.

In fact, many investors have already done so over the past year. While investors continue to pour significant capital into equity ETFs—pushing U.S. ETF assets past the $1 trillion mark by mid-year, with equity ETFs accounting for nearly half of that inflow—many are still parking their money in short-term U.S. Treasury bonds.

Data on ETF fund flows over the past year shows sustained investor demand for short-term U.S. Treasury ETFs, with the iShares 0–3 Month Treasury Bond ETF (SGOV-US) emerging as the top bond ETF in terms of inflows this year.

According to ETFAction.com, SGOV has recorded a year-to-date net inflow of $47.5 billion and now manages nearly $100 billion in assets, making it the world’s third-largest bond ETF, behind only the Vanguard Total Bond Market ETF (BND-US) and the iShares Core U.S. Aggregate Bond ETF (AGG-US).

In a Monday interview, Dimon stated that, in addition to current U.S. stock valuations being too high for him to invest, he would also avoid buying long-term U.S. Treasuries. 'The 10-year Treasury yield should probably be between 4% and 4.5%,' he said.

Dimon believes that even as inflation gradually cools toward the Federal Reserve’s 2% target, there is limited upside potential for long-term Treasury prices.

Currently, the U.S. 10-year Treasury yield stands at approximately 4.6%. Yields have mostly trended upward this year, as market expectations have shifted from the Fed eventually cutting rates to a higher likelihood of further rate hikes.

As long as rate hike risks persist and inflation remains uncertain, the price of the 10-year Treasury—which moves inversely to yield—could continue to face downward pressure. Additionally, concerns over the scale of U.S. government spending and deficits are further pushing yields higher.

According to ETFAction, among the top 10 ETFs by inflows over the past year, only two fixed-income products made the list: the Vanguard Total Bond Market ETF and the iShares 0–3 Month Treasury Bond ETF. SGOV ranked fifth among all ETFs with nearly $50 billion in net inflows, trailing only the largest equity ETFs, including the core S&P 500 ETFs from Vanguard, iShares, and State Street, as well as the Vanguard Total Stock Market ETF (VTI-US).

The investor preference for short-term Treasuries has continued into this year, with SGOV ranking fifth in ETF inflows for the month of June alone.

The idea of using short-term Treasuries to reduce portfolio volatility is not new. One of its most famous proponents is none other than 'Oracle of Omaha' Warren Buffett.

In his 2013 letter to Berkshire Hathaway shareholders, Buffett outlined his estate plan, advising his wife to allocate 90% of her assets to an S&P 500 index fund and 10% to short-term U.S. Treasury bonds. He stated that this allocation would be sufficient for the majority of long-term investors.