BlackRock looks to UK for government bond allocations

blackrock fixed income UK government bonds bonds

5 June 2024
| By Laura Dew |
image
image
expand image

BlackRock has moved overweight on developed market (DM) government bonds for the first time in five years.

In an asset allocation update from the BlackRock Investment Institute (BII), the investment team flagged the move it has made in government bonds over holding investment grade credit.

In terms of maturity, BII said it prefers short-dated maturities over long ones across DMs as there is more uncertainty, volatile inflation and heightened bond market volatility at present.

“We’re in a new, more volatile regime where macro risks are elevated and valuations are shifting more quickly. Assessing valuations on a strategic horizon of five years and longer is key for long-term investors, even if short-term performance can be driven by other factors. 

“DM government bonds are another area where we find opportunities – notably in short-dated DM and long-dated DM bonds excluding the US. 

“We’re now overweight DM government bonds overall on a strategic horizon for the first time in five years.”

It particularly favours UK gilts and eschews US Treasuries as it expects policy rate to fall more in the UK than in the US, which makes UK government bond yields more attractive than other DMs. 

The Bank of England has set interest rate at 5.25 per cent which has been held in place since August 2023. But inflation is at 2.3 per cent, lower than in Australia and within the BOE’s 23 per cent target, so there are expectations that a rate cut could come as early as June. 

“Gilt yields have compressed relative to US Treasuries, markets are pricing in Bank of England policy rates closer to our expectations.”

On the other hand, the BII is underweight on investment grade credit and on Japanese government bonds the only two areas out of 14 fixed income assets where it holds an underweight.

“Tight spreads don’t compensate for the expected hit to corporate balance sheets from rate hikes, in our view.” 

Read more about:

AUTHOR

Add new comment

The content of this field is kept private and will not be shown publicly.

Recommended for you

sub-bgsidebar subscription

Never miss the latest news and developments in wealth management industry

MARKET INSIGHTS

JOHN GILLIES

tHOSE 989 WHO ARE CEASED WILL GO ON TO LIVE A LONG AND HEALTHY LIFE JG...

4 days 10 hours ago
Chris Cornish

What a sticth-up. Looks like Labor Senator Jess Walsh follows Stephen Jones who follows what the industry super funds ...

4 days 7 hours ago
Peter Swan

This report is a blatant display of far-left factional partisanship, treating superannuation funds as state property and...

4 days 8 hours ago

ASIC has cancelled the AFS licence of a Sydney wealth firm, the fifth Sydney firm to see a cancellation since the start of the year....

2 weeks 5 days ago

More than 20 winners from the funds management industry have been crowned at this year’s awards....

1 week 5 days ago

ASIC has obtained interim orders from the Federal Court to freeze the assets of a registered managed fund and prevent its former director from leaving Australia. ...

6 days 7 hours ago

TOP PERFORMING FUNDS

ACS FIXED INT - AUSTRALIA/GLOBAL BOND