BlackRock Inc. may look to increase duration in its fixed-income portfolio to reflect the greater risk of U.S. interest-rate cuts next year.
Following a shift in the Federal Reserve’s outlook this week to signal a focus on easing policy in 2024, the world’s biggest asset manager sees “selective opportunities that we can take advantage of,” said Wei Li, its chief investment strategist.
“Leaning into duration within fixed income, inflation-linked bonds actually could start looking interesting now, especially given the pivot,” Li said in an interview on Bloomberg TV, adding that more rate cuts would strengthen her view that U.S. inflation could settle at a higher level.
BlackRock’s view earlier this month was that markets were too optimistic on rate cuts and it recommended stepping back from longer-maturity bonds. While the firm hasn’t officially changed its rate outlook or positioning in fixed income, it’s already “strategically overweight” inflation linked bonds, Li said in written comments.
BlackRock moved from a long-held tactical underweight position on duration to being overweight this quarter, and then recently trimmed that to neutral, Li said. The asset manager has previously argued that the Fed will start cutting rates in the middle of next year, while markets are now betting on a first cut in May and roughly 145 basis points off U.S. borrowing costs in total next year.
Fed officials issued forecasts for a series of cuts next year. Li said that the Fed’s pivot had been “pretty distinct,” and added that it increased the possibility that cuts could happen “slightly sooner.”
“So long as the Fed is doubling down on this narrative, I definitely don’t want to go against it,” she said.
This article was provided by Bloomberg News.