BlackRock Suddenly Snubs US Government Bonds, Shifting to This Geography Amid Sticky Inflation Concerns: Report

The world’s largest asset manager has reportedly turned on US Treasuries.

In a report seen by Bloomberg, BlackRock Investment Institute strategists recently upgraded their view on European government bonds from slightly underweight to neutral, comparing them positively to US government debt obligations.

BlackRock also notes that the Federal Reserve may hold back on cutting interest rates due to sticky inflation, while high budget deficits might urge investors to ask for a higher yield premium to hold long-dated US bonds.

“We prefer euro area government bonds and credit over the US. Yields are attractive, and term premium has risen closer to our expectations relative to US Treasuries.”

The BlackRock strategists specifically highlight bonds from Italy and Spain.

The asset manager isn’t the only financial giant to take a less optimistic view of US Treasuries. Goldman Sachs market strategists also recently lowered their forecasts for US Treasury yields on the basis that the Federal Reserve will most likely begin cutting interest rates sooner than expected.

Goldman’s economists originally predicted the Fed would only enact one rate cut near the end of the year, but they are now expecting cuts in September, October and December.

The Financial Times recently reported that $11 billion in US long-term bond funds focused on government and corporate debt were sold in only three months.

The second quarter sell-off ends a three-year run of net inflows into long-term US bond funds, with the previous sell-off occurring in 2022 Q2.

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