BlackRock Investment Institute has revised its U.S. asset allocation, raising short-term U.S. Treasuries to overweight and moving long-term Treasuries from underweight to neutral, ending a nearly six-year underweight stance on U.S. government bonds.
In the same update, the firm cut U.S. equities from overweight to neutral, downgraded U.S. agency mortgage-backed securities, or MBS, to neutral, and reduced its underweight position in Japanese government bonds.
BlackRock ends a long-running underweight call on Treasuries
BlackRock had been underweight U.S. Treasuries since October 2020, when the 10-year Treasury yield was close to 0.9%. It has now risen to above 5.2%.
The institute said yields have climbed to levels it considers attractive and that it wants to lock in part of the higher income available. It also said market expectations for further Federal Reserve tightening may be overdone.
Interest-rate swaps currently show traders expect at least three rate hikes of 25 basis points each over the next 12 months. BlackRock said Treasury yields would need to rise another 75 basis points over the next year to fully offset the income generated by holding the bonds.
U.S. equities cut to neutral
On U.S. stocks, BlackRock said the downgrade was tied to 「potential volatility from AI buildout」.
As AI-related buildout drives capital spending and financing demand higher, the firm said elevated rates are making differences in corporate returns more visible, leaving investors to judge whether companies can generate returns above their cost of capital.
BlackRock said, 「We are managing near-term risk, not changing our core conviction.」
The firm said it still favors AI-linked companies and listed infrastructure, and is prepared to add risk exposure again when visibility improves and more attractive entry points emerge.