BlackRock Favors U.S. Treasurys Over Other Nations' Amid Policy Pause -- Update

By Daniel Kruger 

The world's largest money manager is favoring U.S. Treasurys over other sovereign bonds because it expects yields outside the U.S. to linger near recent lows.

Treasurys yield more than government debt from other developed markets, which should support their value if the pace of global growth picks up next year, BlackRock Inc. asset managers said Tuesday at a media presentation.

Global growth could accelerate next year after central banks around the world -- including in the Federal Reserve, the European Central Bank and the People's Bank of China -- took steps to lower rates and boost growth in the face of a world-wide slowdown, BlackRock managers said.

BlackRock prefers short-term Treasurys over longer-term U.S. government debt because investors often seek higher returns in riskier assets when economic prospects are improving, leading them to sell longer-term Treasurys.

The firm, which had $6.84 trillion in assets under management as of June 30, is also investing more in Treasury inflation-protected securities because its asset managers think that prices could rise more next year as growth speeds up and as businesses pass on some of their cost increases from U.S. tariffs, its managers said.

Yields on European debt may climb if governments in the region, such as Germany, increase spending in order to stimulate growth and inflation. Those have disappointed investors and policy makers in recent years. Inflation represents a threat to the value of a bond's fixed interest and principal payments and can spur central banks to raise rates.

The yield on the benchmark 10-year Treasury note rose for the seventh time in the past nine trading sessions, settling at 1.833%, versus 1.829% Monday. That compares with a yield of negative-0.298% on 10-year German government debt, according to Tradeweb. Bond yields rise when their prices fall.

BlackRock also expects Fed officials to keep interest-rate policy on hold next year and a rise in partisan gridlock in Washington, predictions widely shared by a large number of institutional investors.

The stronger pace of global growth will make it difficult for Fed officials to justify any decision to lower interest rates next year, after policy makers cut interest rates three times this year in order to protect the U.S. economy against the effects of the global slowdown.

With interest rates low around the world, "markets are going to be driven more by macro fundamentals," said Martin Small, a managing director who leads BlackRock's U.S. wealth advisory business.

Policy differences between the House of Representatives, which is controlled by Democrats, and President Trump, a Republican, are likely to be sharpened by national elections next year, making it unlikely the two sides will be able to reach any deal to increase government spending, the firm's money managers said.

The WSJ Dollar Index, which measures the U.S. currency against a basket of 16 others, fell less than 0.1% to a recent 90.53.

Write to Daniel Kruger at [e-mail]

(END) Dow Jones Newswires

December 10, 2019 17:23 ET (22:23 GMT)

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