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Skip NavigationMarketsBusinessInvestingTechPolitics & PolicyVideoWatchlistInvesting ClubPROLivestreamMenuSurging bond yields have prompted BlackRock to adjust its view on U.S. Treasurys for the first time in around six years — at the expense of its exposure to stocks. The world’s largest asset manager said on Tuesday it has cut its stance on U.S. equities to neutral from overweight, and upgraded its Treasurys position to overweight from neutral. BlackRock’s government bond underweight had been a portfolio “mainstay” for the fund management giant for “most of the last six years”, it added, only occasionally switching to neutral. “Yields have reset toward our long-held higher-rates view, and we want to lock in some attractive income,” BlackRock said in its weekly market commentary. The move follows a sharp pick-up in yields in recent weeks, with 10-year and 30-year U.S. Treasury yields touching levels last seen in 2002. The benchmark 10-year Treasury yield has moved about 110 basis points this year, to 5.25%, driven partly by the higher energy costs caused by the Middle East conflict. That compares to 0.9% in October 2020, when BlackRock first went underweight. US10Y YTD mountain U.S. 10-Year Treasurys. BlackRock, which has more than $15.3 trillion in assets under management, said market expectations of 160 additional basis points of Fed tightening over the next 12 months now look “overdone.” It is adding Treasurys across the yield curve, with short-term bonds its favored pick, where it sees the most room for those expectations to unwind. The move is partly funded by some profit-taking in U.S. equities, where it has downgraded its view to neutral, and U.S. agency mortgage-backed securities, where the firm is now also neutral. “We are upgrading shorter-term Treasuries to overweight, where we see scope for excessive Fed tightening expectations to unwind, and long-term Treasuries to neutral as higher yields now provide better compensation for interest rate risk.” BLK YTD mountain BlackRock. The firm said Treasurys have a 75-basis-point cushion against further yield increases over the next 12 months before total returns turn negative. Meanwhile, BlackRock’s switch to neutral from overweight in U.S. stocks should be seen as a “short-term risk management” decision in the context of a volatile market backdrop. It continues to prefer AI and tech within stocks and said its fundamental conviction in AI remains intact, despite citing policy uncertainty as fueling near-term volatility. “We are managing near-term risk, not changing our core convictions. Higher yields offer an opportunity to add Treasuries, funded partly by taking profits on U.S. equities. We remain constructive on AI and stand ready to add risk again as visibility improves and attractive entry points emerge.”Read More