TLT Falls Out of Favor as Yields Stabilize Near 5%

30-year Treasury yields hovered near 5% this week, holding close to their highest levels of the cycle. But unlike in 2023, when yields crossed the 5% threshold for the first time in 16 years, ETF investors aren’t rushing to buy long-term bonds this time around.

The iShares 20+ Year Treasury Bond ETF (TLT), once a go-to play for investors looking to bet on falling rates, has seen a sharp reversal in sentiment. So far in 2025, investors have pulled $2 billion from the fund, bringing its assets under management down to just over $47 billion.

That puts TLT behind the iShares 0-3 Month Treasury Bond ETF (SGOV), which recently became the largest Treasury-only ETF in the United States. SGOV now boasts $51.3 billion in assets, reflecting a clear shift in investor preference toward the short end of the yield curve.

TLT Demand Drops Off

Part of the dropoff in TLT demand is simply due to normalization. In 2022 and 2023, when rates first surged past 4% and 5%, those levels were shocking after more than a decade of near-zero interest rates. But now, with yields holding steady at elevated levels for several years, investors have grown accustomed to this new environment. The initial appeal of “locking in” high yields has faded.

At the same time, long-term Treasurys still face significant headwinds. Inflation concerns remain elevated amid the Trump administration’s new round of tariffs. Federal debt worries are mounting in the wake of the administration’s recently passed tax and spending bill. And escalating trade tensions have raised questions about foreign demand for U.S. government bonds.

Taken together, these risks have tempered enthusiasm for long-duration exposure. While a 5% yield is still attractive—especially if the economy weakens and rates decline—the risk/reward for long bonds looks more balanced today. There are still plenty of catalysts that could push yields even higher.

SGOV Gains Traction

That may explain why short-term Treasury ETFs like SGOV have been gaining traction. With near-zero interest rate risk, SGOV offers a current 30-day SEC yield of 4.22%, not far behind TLT’s 4.92% yield but with much lower duration exposure.

Of course, the dynamics could shift. If the Federal Reserve begins cutting rates aggressively, yields on short-term Treasurys will drop. In that scenario, TLT and other long-duration bond ETFs could regain favor as investors seek to lock in higher yields before they disappear.

For now, however, investors prefer the safety and flexibility of T-bills over the volatility of long bonds.