BlackRock has shifted its investment strategy, turning bullish on short-term US Treasuries and downgrading US equities. The firm upgraded short-term Treasuries to overweight and longer-term debt to neutral, citing high yields and potentially excessive expectations for Federal Reserve tightening. To fund this shift, BlackRock downgraded US equities to neutral from a long-held overweight position, citing potential volatility around the AI buildout. The move marks a notable shift for BlackRock, which first went underweight Treasuries in October 2020 when the 10-year yield was near 0.9%. The benchmark yield has since surged above 5.2% as investors grapple with stronger economic growth, heavy demand for capital, and renewed inflation concerns stemming from higher oil prices and Middle East tensions.
BlackRock is the latest major asset manager to pivot more bullish on fixed income after the sharp rise in yields. Rupert Harrison, a senior portfolio adviser at Pacific Investment Management Co., said last week that the firm’s overall bond portfolio is "about as long duration as we have been for a very long time." BlackRock said current market expectations for Fed rate hikes have gone too far, making short-term Treasuries particularly attractive if those bets are trimmed. Interest-rate swaps show traders expect at least three quarter-point increases over the next 12 months. At the current level, bond yields could rise another 75 basis points over the next 12 months before the income earned on Treasuries is fully offset and total returns turn negative, according to BlackRock. The team stressed that the retreat from US equities is more about managing risk in the near term than changing its longer-term outlook. Its conviction in the artificial-intelligence investment boom remains intact, and the firm continues to favor AI-related companies and listed infrastructure. Higher interest rates, however, are increasingly differentiating companies based on their ability to generate returns above their cost of capital.
Source: Bloomberg Markets · Summarized by HeadlinesBriefing