BlackRock shifts to an overweight position in short-term US Treasuries for the first time in six years, and downgrades its rating on US equities.

BlackRock Investment Institute has adjusted its U.S. asset allocation, upgrading short-term U.S. Treasuries to an overweight rating, raising long-term U.S. Treasuries from underweight to neutral, and ending its nearly six-year underweight stance on U.S. government bonds. Meanwhile, the firm cut its rating on U.S. equities from overweight to neutral, lowered its rating on U.S. agency mortgage-backed securities (MBS) to neutral, and reduced its underweight position in Japanese government bonds. BlackRock has held an underweight position in U.S. Treasuries since October 2020, when the 10-year U.S. Treasury yield was near 0.9% and has now risen above 5.2%. The institute believes yields have climbed to an attractive level, and it aims to lock in some of the higher returns, noting that market expectations for further monetary policy tightening by the Federal Reserve may be excessive. Currently, interest rate swap markets show traders expect at least three 25-basis-point interest rate hikes over the next 12 months. BlackRock points out that U.S. Treasury yields would need to rise another 75 basis points over the next year to fully offset the income generated by the bonds. On the U.S. equities front, BlackRock attributed the rating cut to "potential volatility from AI development". As AI expansion drives higher capital expenditure and financing needs, high interest rates amplify return disparities among companies, requiring investors to assess whether firms can generate returns above their cost of capital. The firm emphasized: "We are managing near-term risks, not changing our core beliefs." BlackRock remains bullish on AI-related companies and listed infrastructure, and plans to increase its risk exposure again when visibility improves and attractive entry points emerge.