BlackRock's Top Bet Is Shunning Sovereign Bonds in All Scenarios
The chorus of buy calls on government bonds is growing louder but BlackRock Inc. begs to differ.
The firm’s top conviction is to avoid long-term sovereign securities as debt levels rise, government borrowing climbs and inflation hits elevated levels. Investors will increasingly demand higher yields to compensate and interest rates may stay higher for longer than the market is expecting, according to the world’s biggest money manager.
“We are underweight nominal long-term government bonds in each scenario in this new regime,” vice chairman Philipp Hildebrand and his colleagues wrote in a report that examined four different market outlooks. “Central banks are unlikely to come to the rescue with rapid rate cuts in recessions they engineered to bring down inflation to policy targets.”
A record annual rout in Treasuries is forcing fixed-income investors to reassess their game plan for 2023 as some strategists warn that optimism about a peak in the rate-hike cycle may be premature. Market players are divided on the outlook, with the likes of Fidelity International and Jupiter Asset Management piling into bonds to counter the risk of a recession.