BlackRock Investment Institute upgraded short-dated U.S. Treasuries to overweight and shifted longer maturities to neutral from underweight. It also reduced the size of an underweight in Japanese government bonds and moved U.S. agency mortgage-backed securities to neutral.
To make room, the firm lowered U.S. equities to neutral after a sustained overweight, pointing to "potential volatility around the AI buildout."
Yields have climbed to their highest marks in more than two decades. The firm initially moved underweight Treasuries in October 2020, with the 10-year around 0.9%; from there the benchmark topped 5.2% as investors factored in sturdier growth, sizable financing needs, and inflation concerns linked to elevated oil prices and tensions in the Middle East. A Bloomberg gauge of U.S. Treasury returns is down more than 2% this year.
"Now, yields have reset toward our long-held higher-rates view, and we want to lock in some attractive income," the team wrote. They also argue rate-hike bets have stretched too far. Interest-rate swaps indicate traders expect at least three 25 basis point increases over the next year, which makes short-term Treasuries particularly appealing if those expectations ease.
Allocation shifts at the largest asset manager move whole markets. Market Briefs covers positioning free every weekday.
By BlackRock's math, from current yield levels, rates could advance by another 75 basis points in the next 12 months before coupon income would be fully outweighed and total returns would flip negative. The equity shift is about near-term risk control, not a change in long-run themes: "We are managing near-term risk, not changing our core convictions," the team wrote. "We remain constructive on AI and stand ready to add risk again as visibility improves and attractive entry points emerge." They still prefer AI-related companies along with listed infrastructure, observing that rising rates are increasingly sorting companies by their ability to exceed their cost of capital.
BlackRock's move lines up with a broader lean toward fixed income after the bond selloff. Last week, Pacific Investment Management Co.'s senior portfolio adviser Rupert Harrison said Pimco's overall bond exposure is "about as long duration as we have been for a very long time."
BlackRock just shifted some exposure from U.S. stocks into short Treasuries to capture income if rate expectations temper. With yields elevated, bond math matters again, while the equity message is more about weatherproofing than giving up on growth. If AI headlines get choppy or rate bets cool, they say they'll be ready to lean back in.
Moving to short duration is a clear statement about rates. Join Market Briefs free and follow the flows.
