According to Odaily, Jean Boivin, head of the BlackRock Investment Institute, has advised investors to opt for global bonds instead of long-term U.S. Treasuries. He suggests that persistent inflation next year will likely force the Federal Reserve to take a backseat. In an interview at BlackRock's New York office on Wednesday, Boivin stated, "We do not expect inflation to spiral out of control, but it will not align in a way that allows for rate cuts. This is not the beginning of an easing cycle. It will be an adjustment, a recalibration."
Since the Federal Reserve began cutting rates in mid-September, yields on two-year, five-year, and ten-year U.S. Treasuries have risen from around 3.5% to ver 4%. Strong economic data has led traders to reduce the likelihood of significant rate cuts, with the expected rate cut over the next 12 months being around 3.7%. Boivin believes that "the Federal Reserve does not have much room to lower rates below 4%." This week, several Federal Reserve officials expressed a cautious approach to reducing rates to a neutral range of around 3% next year. Meanwhile, proposed tax cuts, deregulation, and tariff measures by President-elect Trump could stimulate economic growth and inflation during his second term.
BlackRock's research department released its global outlook for 2025 on Wednesday, indicating a reduction in long-term U.S. Treasuries at both tactical and strategic levels. Boivin mentioned that BlackRock favors holding U.S. corporate bonds, UK government bonds, and other bonds outside the U.S., as central banks in these regions have more room for easing in 2025. He reiterated concerns about the rapid growth of U.S. debt and persistent deficits, warning that even if nominated Treasury Secretary Scott Bessent aims to reduce the budget deficit to 3% of GDP in the coming years, the cost of repaying these debts will become a market issue. "The deficit issue is sidelined, and there are no advocates for tightening policies," he said.
Boivin expressed concern about the risk of any surge in long-term bond yields. He did not rule out the possibility of ten-year bond yields "sustainably approaching 5% or being perceived as more persistently remaining at that level," which would alter the U.S.'s "budgetary arithmetic" and prompt investors to demand additional returns for holding Treasuries. He added, "There is also a desire to return to a low-interest-rate environment, so questions about debt repayment costs could trigger periodic premium adjustments."