BlackRock cautious on long-term US Treasuries ahead of elections

BlackRock cautious on long-term US Treasuries ahead of elections

By Davide Barbuscia

NEW YORK (Reuters) – The BlackRock Investment Institute said on Monday it was cautious about long-term U.S. Treasuries ahead of the November presidential elections, as investors are likely to demand more compensation to hold them in due to significant budget deficits.

“We remain overweight on U.S. stocks ahead of the U.S. election, but cautious on long-term U.S. Treasuries. Whoever wins, budget deficits are expected to remain large,” said the institute, an arm of the main manager of BlackRock assets, in a note.

Neither President Joe Biden nor his Republican challenger Donald Trump “is charting a path to lasting deficit reduction,” the institute said. Large deficits will keep inflation high, so interest rates are likely to remain high for a long time.

“We believe this, and markets having to absorb large bond issuances, will cause investors to demand more term premium, or compensation for the risk of holding long-term U.S. bonds,” did he declare.

The institute maintains an “overweight” recommendation for short-term U.S. Treasuries, saying it prefers them in a high interest rate environment, and remains neutral on longer-term U.S. government bonds .

While there is no end in sight to large budget deficits, some investors have begun to allocate their funds in a way to avoid losses if Treasury yields, which move inversely to prices, begin to fall. increase due to imbalances between supply and demand.

This week, the Treasury will sell nearly $120 billion worth of bonds with maturities of three, 10 and 30 years.

Demand for each auction is closely watched because of concerns around U.S. debt sustainability, said Jimmy Chang, chief investment officer of the Rockefeller Global Family Office.

He expects a return of so-called “bond vigilantes,” investors who punish spendthrift governments by selling their bonds, but said the timing is uncertain.

“Politicians don’t win elections or re-elections on the promise of austerity…Ultimately, I suspect the result will be that the market will discipline Washington,” he said.

(Reporting by Davide Barbuscia; editing by Susan Fenton)

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