BlackRock Investment Institute say that after being underweight long-term U.S. Treasuries since late 2020, as we saw the new macro regime heralding higher rates, they've tweaked their view:
- U.S. 10-year yields at 16-year highs show they have adjusted a lot – but we don’t think the process is over.
- We now turn tactically neutral as policy rates near their peak.
- The next step is not overweight: we see investors demanding more compensation for bond risk and stay underweight on a long-run, strategic horizon.
- We downgrade high grade credit further
And:
- We now see about equal odds that Treasury yields swing in either direction. In other words, we see two-way volatility ahead.
- The Fed is likely nearing the end of its fastest hiking cycle since the 1980s after raising rates into restrictive territory.
- We still see the Fed holding policy tight to lean against inflationary pressures.
