BlackRock Shifts Focus from US Treasuries to European Bonds Amid Inflation Concerns

In a significant move, BlackRock, the world's largest asset manager, has reportedly shifted its investment focus away from US government bonds, favoring European government debt instead. According to a Bloomberg report, BlackRock Investment Institute strategists have upgraded their stance on European government bonds from slightly underweight to neutral, citing more attractive yields and term premiums compared to US Treasuries. The strategists pointed out that persistent inflation may delay the Federal Reserve's interest rate cuts, while the US's high budget deficits could necessitate higher yield premiums for long-term bonds. "We prefer euro area government bonds and credit over the US. Yields are attractive, and term premium has risen closer to our expectations relative to US Treasuries," the strategists noted, with particular emphasis on bonds from Italy and Spain. This sentiment is echoed by other financial giants, including Goldman Sachs, which has adjusted its forecasts for US Treasury yields, anticipating earlier rate cuts by the Fed than previously expected. The Financial Times also highlighted a significant sell-off in US long-term bond funds, marking the end of a three-year period of net inflows. This strategic shift by major investors underscores growing concerns over inflation and fiscal sustainability in the US.