By Christine Idzelis
BlackRock shifts its tactical view of long-term Treasurys but says the macroeconomic backdrop is ‘murky’
The S&P 500 booked a fresh record high Monday as Treasury yields fell.
BlackRock has turned neutral on long-term Treasurys, as investors prepare for the Federal Reserve to likely resume its interest-rate-cutting cycle as soon as this week.
“We go neutral” on long-term Treasurys for the “tactical” horizon running over the next 6-12 months, “after having long been underweight,” said Jean Boivin, head of the asset manager’s (BLK) BlackRock Investment Institute, in a note Monday. That’s because “yields could fall further near term even if the structural pressures driving them up, including loose fiscal policy globally, persist.”
The Fed would be justified in lowering interest rates as the “much softer” labor market should help ease inflation pressures, according to the note. BlackRock Investment Institute is “risk-on,” expecting that Fed rate cuts should be positive for stocks while supporting long-term bonds, but Boivin cited risks surrounding inflation still stuck above the Fed’s 2% target and described the macroeconomic backdrop as “murky.”
“We may be in an unusual ‘no hiring, no firing’ state: Fed rate cuts could boost confidence and spark hiring again just as inflation is still far above the Fed’s target,” he wrote. “We close our long-term U.S. Treasuries underweight but see pressures for higher yields staying.”
Read: As Fed nears highly anticipated rate cut, the market ‘really hinges’ on 10-year Treasury yield
Among long-term bonds, the yield on the 10-year Treasury note BX:TMUBMUSD10Y declined 2.3 basis points Monday to 4.034%, after falling for four straight weeks. Still, the 10-year Treasury rate ended Monday above its 52-week low of 3.622% hit last September, according to Dow Jones Market Data. Bond yields and prices move in opposite directions.
Investors are largely expecting that the Fed will announce Wednesday at the conclusion of its policy meeting that it’s reducing its benchmark rate by a quarter percentage point to a target range of 4% to 4.25%, according to the CME FedWatch Tool on Monday.
The likely resumption of the Fed’s rate-cutting cycle has prompted BlackRock Investment Institute to make another shift in its tactical view of U.S. government bonds: “We also flip neutral on short-term Treasuries from overweight,” said Boivin.
‘Risk-on’
BlackRock remains “risk-on heading into Fed rate cuts,” as it expects that U.S. growth “holds up” even as it slows and that company earnings will remain “solid,” according to the note.
“We think rate cuts amid a notable slowing of activity without recession should support U.S. stocks and the [artificial-intelligence] theme,” Boivin said. Market “drivers have shifted from tariffs and policy uncertainty – which sparked questions about the appeal and haven status of U.S. assets – to the tensions between inflation, growth and government debt.”
Looking over a strategic horizon of five years, BlackRock indicated some concern about long-term government bonds. “On a strategic horizon, we stay underweight long-term government bonds and prefer inflation-linked bonds,” said Boivin.
Meanwhile, core inflation, which excludes food and energy prices, appeared “sticky,” he said, pointing to data for August from the consumer-price index. CPI data showed that core inflation in the U.S. rose 0.3% in August, climbing at an annual rate of 3.1%.
“We need to be ready for a few very different macro scenarios in coming months,” even if BlackRock’s base case is that Fed rate cuts on a soft labor market is “positive for equities” and could lead to support for long-term bonds, according to the firm’s note Monday.
“If the labor market were to weaken much more, Fed rate cuts won’t be enough to offset the pressure on risk assets, in our view – and we would be ready to reduce risk,” Boivin said. “On the flipside, a hiring rebound could stoke inflation pressures and put the spotlight on Fed independence again, prompting investors to seek more compensation for the risk of holding long-term bonds.”
The U.S. stock market closed higher Monday, with the S&P 500 SPX, Dow Jones Industrial Average DJIA and Nasdaq Composite COMP all rising. The S&P 500 and technology-heavy Nasdaq finished at fresh record peaks.
-Christine Idzelis
This content was created by MarketWatch, which is operated by Dow Jones & Co. MarketWatch is published independently from Dow Jones Newswires and The Wall Street Journal.
(END) Dow Jones Newswires
09-15-25 1641ET
Copyright (c) 2025 Dow Jones & Company, Inc.