BlackRock turns overweight on short-term US Treasuries for the first time in six years, downgrades US equities.

BlockBeats news, October 13 — BlackRock's investment research arm adjusted its U.S. asset allocation, upgrading short-term U.S. Treasuries to overweight, raising long-term U.S. Treasuries from underweight to neutral, ending nearly six years of underweight positioning on U.S. debt. At the same time, the institution downgraded U.S. equities from overweight to neutral, lowered the rating on U.S. agency mortgage-backed securities (MBS) to neutral, and reduced its underweight position on Japanese government bonds.

BlackRock had been underweight U.S. Treasuries since October 2020, when the 10-year Treasury yield was near 0.9%, and it has now risen above 5.2%. The institution believes yields have risen to attractive levels, wants to lock in some of the higher yields, and that market expectations for further Federal Reserve monetary tightening may also be excessive.

Currently, the interest rate swap market reflects that traders expect at least three 25-basis-point rate hikes over the next 12 months. BlackRock noted that U.S. Treasury yields would need to rise another 75 basis points over the next 12 months to fully offset the income earned from bonds.

On U.S. equities, BlackRock attributed the downgrade to "potential volatility from the AI buildout." As the AI buildout drives increased capital expenditure and financing needs, higher rates make return disparities between companies more pronounced, and investors need to judge whether companies can generate returns above their cost of capital. The institution emphasized: "We are managing near-term risk, not changing our core beliefs." BlackRock remains bullish on AI-related companies and listed infrastructure, and is prepared to increase risk exposure again when visibility improves and attractive entry points emerge.