Beyond SGOV: A Bond ETF Playbook for an Uncertain 2025

In 2025, ultra-short-term Treasury ETFs like the iShares 0-3 Month Treasury Bond ETF (SGOV) have become the go-to choice for many investors and advisors. 

It’s easy to see why: Yields above 4%, near-zero duration risk and the full backing of the U.S. government make these bonds the perfect parking spot for capital during times of uncertainty, especially with tariff-driven inflation fear and policy confusion swirling.

But focusing too heavily on the short end of the yield curve may come at a cost. For smart diversification, diversifying across bond ETF types, including core aggregate bond holdings like the iShares Core U.S. Aggregate Bond ETF (AGG) and long-term Treasurys like the iShares 20+ Year Treasury Bond ETF (TLT), can offer greater balance, income potential and protection, especially as economic conditions evolve unpredictably.

Why not invest in all three of them? Here’s how 2025 has made fixed-income portfolio construction a challenge and how different bond ETFs can combine for a single objective.

The Fixed-Income Market Is Just as Uncertain as Equities

The first half of 2025 has proven one thing: The bond market is just as volatile and uncertain as the stock market. Advisors and investors are caught in the middle of several conflicting signals:

• Trade policy remains inconsistent, raising fears of supply-side inflation.
• Inflation is cooling but not enough for the Fed to commit to a rate-cut path.
• The U.S. economy shows signs of stalling, with rising unemployment and declining consumer confidence.
• The Fed’s messaging is mixed as officials debate whether inflation or economic weakness deserves more attention.

This uncertainty makes it difficult to construct a fixed-income portfolio that offers both safety and growth, forcing investors to look beyond the obvious and consider a wider range of bond ETFs that offer different risk-reward profiles.

SGOV vs. AGG vs. TLT: Their Role in a Balanced Strategy

Let’s break down three key bond ETF categories that deserve attention in this climate.

iShares 0-3 Month Treasury Bond ETF (SGOV)

SGOV holds Treasury bills with maturities of zero to three months. It provides a stable yield with minimal interest rate risk, making it a favored spot to wait out volatility without going to cash.

• Yield: ~4.5%
• Duration: Near zero
• Primary benefit: Capital preservation, inflation resistance
• Best use: Cash alternative or inflation hedge

iShares Core U.S. Aggregate Bond ETF (AGG)

AGG offers exposure to the total U.S. investment-grade bond market, making it a reliable backbone for fixed-income portfolios. It’s more volatile than SGOV but has greater potential for price appreciation if yields decline.

• Yield: ~4.4%
• Duration: Moderate (averages about six years)
• Primary benefit: Broad diversification across U.S. government, corporate and mortgage-backed bonds
• Best use: Core holding with moderate return potential

iShares 20+ Year Treasury Bond ETF (TLT)

TLT is risky, as its long duration translates to broader price swings than most bond funds, but it offers big potential gains in a downturn, making it a good recession hedge. If the Fed is forced to cut rates aggressively, long-term Treasurys may shine. But if inflation spikes again, the pain could be severe.

• Yield: ~4.3%
• Duration: Long (averages about 16 years)
• Primary benefit: High rate sensitivity, strong upside in recessions
• Best use: Hedge against deep economic slowdown or falling interest rates

A Mixed Bond ETF Strategy Offers the Best of All Worlds

Concentrating fixed-income exposure in just one area, whether that’s ultra-short, core or long-duration, may work in the short term but can leave investors exposed when market conditions change.  

In 2025, with no clear direction from the Fed, economic data or policy leaders, building a multi-faceted bond ETF allocation can be a smarter path.

For example:

• SGOV offers shelter during inflation or Fed inaction.
• AGG balances income with diversification.
• TLT positions a portfolio for recession or aggressive rate cuts.

Holding all three, even in modest proportions, creates a more resilient bond sleeve that can adjust to multiple outcomes. For advisors, it’s a strategy that reinforces long-term discipline. For investors, it may be the difference between frustration and flexibility.

Final Thought on 2025 Bond ETF Diversification

In an economic environment where the narrative shifts weekly, leaning too heavily on one type of bond ETF may leave your portfolio lopsided. Whether you’re managing money professionally or investing for retirement, a blend of SGOV, AGG and TLT offers a thoughtful framework for navigating 2025 and beyond.

Diversification isn’t just for equities; it’s the foundation of smart fixed-income investing, too.

Disclaimer: This article is for informational purposes only and does not constitute financial advice. Investing in ETFs involves risks, and investors should carefully consider their investment objectives and risk tolerance before making any investment decisions.

At the time of publication, Kent Thune held a position in SGOV.