BlackRock Chief Fixed Income Strategist Recommends These Investments Now


Amid volatility, uncertainty, and rising bond yields, BlackRock is taking on more risk in 2021.

On Monday, the BlackRock Investment Institute downgraded government bonds to underweight and credit to neutral, but upgraded equities. Inflation expectations have forced a rise in the US 10-year Treasury yield which has resulted in a stagnant market as investors grow concerned about decreased intervention from central banks.

On Tuesday, BlackRock Chief Fixed Income Strategist Scott Thiel stated that the rebound in Treasury yields was being blown out of proportion. He cited that real yields, adjusted for inflation, have remained negative.

“We think that the economic impact of the Covid crisis will be about a quarter of the economic impact of the global financial crisis, but the stimulus is something like four times more,” he said. “So when we try and apply a kind of cyclical rulebook or gameplan to this crisis, it misses a lot of the important aspects, and one of them is this idea that the economy will really come out of this very aggressively.”

BlackRock strategists also pointed out that a 1 percent increase in 10-year inflation expectations has resulted in a 0.9 percent increase in 10-year Treasury yields since 1998. “Yet since last March breakeven inflation has climbed 1.2%, and nominal yields are up just 0.5%. Inflation-adjusted yields, or real yields, have fallen further into negative territory as a result,” they said.

Growth stocks, largely in the technology sector, have been hit the most by rising yields as investors shift positions to cyclical stocks that would benefit from an economic recovery. The higher yields signal higher borrowing costs which would make growth companies' current trajectories and valuations unsustainable in most cases. Thiel believes that many of these growth stocks shouldn't be selling of.

“Many of the Covid-related trends are here to stay and they may fluctuate over time, but there has obviously been a big shift to online and we expect that to continue,” he said. “But we also think investors need to have exposure to the cyclicality, to the re-emergence of global trade, which is why we like emerging market equities and why in part we have moved our European equity underweight to neutral.”

“That is our new nominal, the idea that interest rates — particularly real rates — will rise, but not as much as they would historically and will be less volatile and thus far that is what we have seen,” he added.

“On a strategis basis, it is the same idea, that valuations look very full and we would prefer equities.”

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Economics, Finance and Investing