Michael Burry is back with a warning, and this time it's about the bond market. The investor famous for betting against subprime mortgages before the 2008 crisis took to X on Thursday to urge everyone to "watch the long bonds." His argument: Treasuries are being squeezed by a combination of forces — an AI-driven debt explosion, rising inflation volatility, a shaky Treasury basis trade, and oil prices creeping back toward $100 a barrel.
"Not sure how much longer PE and PC can hold their breath," Burry wrote, referencing private equity and private credit markets that have been riding high on cheap debt.
The timing is notable. According to Bloomberg data, U.S. 30-year Treasury yields have already spent 27 trading days above the 5% mark in 2026. That's a sharp jump from just six days in 2025 and seven days in 2023. The only recent year with a longer stretch was 2007, when yields stayed above 5% for 50 trading days — right before the financial crisis.
For bond investors, persistently high long-term yields are a problem because they push bond prices down. And long-duration Treasury ETFs — which hold bonds with maturities of 20 years or more — are especially vulnerable because their prices are more sensitive to interest rate changes.
Long-Duration Treasury ETFs in the Crosshairs
Among the largest funds exposed to the long end of the curve are:
- iShares 20+ Year Treasury Bond ETF (TLT)
- Vanguard Long-Term Treasury ETF (VGLT)
- SPDR Portfolio Long Term Treasury ETF (SPTL)
- Vanguard Extended Duration Treasury ETF (EDV)
These funds have durations that can exceed 20 years, meaning even a small rise in yields can translate into significant price declines. For example, a fund with a duration of 20 would lose roughly 20% of its value if yields rise by 1 percentage point.
The Basis Trade: A Hidden Risk
Burry also highlighted the Treasury basis trade — a popular hedge fund strategy that profits from price differences between cash Treasuries and Treasury futures. According to Morgan Stanley, the estimated size of leveraged funds' cash-futures basis trade has fallen from roughly $1.3 trillion to around $1 trillion over recent months as trading opportunities have diminished.
While a shrinking trade might sound like a good thing — less leverage in the system — any disorderly unwinding could amplify volatility in the Treasury market. That would create additional headwinds for long-duration bond funds, which are already under pressure from rising yields.
AI Spending: The Debt Explosion
Burry's reference to an "AI debt explosion" points to the unprecedented capital spending by technology giants to build AI infrastructure. Massive investments in data centers, semiconductor capacity, and power infrastructure have increased financing needs across both the private and public sectors. At the same time, elevated fiscal deficits continue to boost Treasury issuance, contributing to higher long-term borrowing costs.
If inflation remains sticky — particularly with crude oil prices approaching the $100-a-barrel mark — the Federal Reserve may have less room to ease policy aggressively. That could keep long-end yields elevated for longer, putting sustained pressure on long-duration bond ETFs.
Where to Find Shelter
While long-duration Treasury ETFs face a tough environment, investors looking to reduce interest-rate risk may want to consider shorter-duration or inflation-linked fixed-income funds.
Short-duration Treasury ETFs like iShares 0-3 Month Treasury Bond ETF (SGOV) and Vanguard Short-Term Treasury ETF (VGSH) tend to be less sensitive to rising yields because their bonds mature quickly. Meanwhile, Treasury Inflation-Protected Securities (TIPS) funds like iShares TIPS Bond ETF (TIP) and Schwab U.S. TIPS ETF (SCHP) may benefit if inflation expectations continue to rise, as their principal adjusts with inflation.
Burry's warning doesn't mean a crash is imminent, but it's a reminder that the bond market's dynamics are shifting. For investors holding long-duration Treasury ETFs, it might be time to check your exposure — and maybe take a deep breath.
