BlackRock, the world’s largest asset manager, has pivoted its investment strategy regarding U.S. bonds for the first time in six years, upgrading short-term Treasurys to an overweight position while moving long-term bonds to neutral. The strategic shift, announced in a Monday client note, reflects the firm’s view that elevated Treasury yields now offer attractive income opportunities and sufficient compensation for interest-rate risk.
The decision comes as Treasury yields have surged to two-decade highs. The yield on the 10-year Treasury note currently sits at 5.197%, a stark contrast to the near 0.9% level recorded in October 2020 when BlackRock initially adopted its underweight stance. Similarly, the 2-year Treasury yield has climbed from 0.16% in 2020 to 4.778%, a tier not seen since 2007.
Jean Boivin, who leads the BlackRock Investment Institute, stated that higher yields and potentially excessive Federal Reserve tightening expectations have created the conditions to unwind the firm’s longstanding Treasury underweight. “Now, yields have reset toward our long-held higher-rates view, and we want to lock in some attractive income,” Boivin and his team wrote in the report.
To fund the increased allocation to Treasurys, BlackRock is reducing its exposure to U.S. equities, shifting from an overweight to a neutral rating. The firm cited a need to manage potential volatility surrounding the continued build-out of artificial intelligence infrastructure. However, the investment team emphasized that this adjustment is aimed at managing near-term risk rather than abandoning core convictions.
“We still favor AI-related companies and listed infrastructure, where growing demand and scarcity in critical infrastructure support attractive returns,” the note explained. The team expects S&P 500 third-quarter earnings to grow 30% year-over-year, suggesting that fundamentals will prevail even if market narratives around AI shift. They added that higher interest rates are increasingly differentiating companies based on their ability to generate returns above their cost of capital.
Markets are currently pricing in approximately 160 basis points of additional Fed rate hikes over the next 12 months, though many investors view this projection as excessive. With the term premium for long-term Treasurys averaging around 75 basis points since September, BlackRock argued that current yields provide a more appealing entry point. The firm noted that investors have a built-in safety cushion, requiring yields to rise another 75 basis points before returns turn negative.
This marks the latest adjustment in BlackRock’s U.S. equity positioning, which has fluctuated between overweight and neutral several times in recent years. The firm held an overweight rating for nearly a year before moving to neutral in March, only to shift back to overweight in April.
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