Breaking News
Investing Pro 0
🚨 Our Pro Data Reveals the True Winner of Earnings Season Access Data

Government bonds no safe haven in central bank-driven recession -BlackRock

Economy Oct 17, 2022 03:02PM ET
Saved. See Saved Items.
This article has already been saved in your Saved Items
 
© Reuters. FILE PHOTO: The company logo and trading information for BlackRock is displayed on a screen on the floor of the New York Stock Exchange (NYSE) in New York, U.S., March 30, 2017. REUTERS/Brendan McDermid/File Photo
 
BLK
-1.88%
Add to/Remove from Watchlist
Add to Watchlist
Add Position

Position added successfully to:

Please name your holdings portfolio
 

By Davide Barbuscia

NEW YORK (Reuters) - Government bonds may not offer much protection in a recession if surging inflation pressures central banks to continue tightening monetary policy, the BlackRock (NYSE:BLK) Investment Institute said.

Risks of a global recession have increased as central banks around the world tighten monetary policy to bring down consumer prices.

Fears of a downturn would typically send investors out of comparatively risky assets such as stocks and some corporate bonds and into government bonds. But such a scenario is unlikely to play out if inflation remains elevated and central banks are forced to keep interest rates high, strategists at the BlackRock Investment Institute said in a note on Monday.

"Investors traditionally take cover in sovereign bonds, but we see this recession playbook as obsolete ... Result: We stay underweight Treasuries," they said, adding they expect government bond yields - which move inversely to prices - will keep rising.

Benchmark U.S. Treasury 10-year yields, which were about 1.5% at the beginning of the year, have surged to above 4% this year, their highest level since 2008, a trajectory followed by yields of many other countries' government bonds.

While central banks have typically eased monetary policy to boost economies when they showed signs of contraction, "That era is over. Now central banks are set to induce recessions by over-tightening policy," BlackRock, the world's largest asset manager, said.

The firm expects long-term government bond yields to keep rising in developed markets. Central banks will eventually halt rate hikes, but inflation rates will remain above targets, hampering their ability to start rate cuts, it said.

Typical investment diversification strategies - including the traditional portfolio weighted 60% stocks and 40% bonds - have underperformed this year as stocks and bonds got hit together by tighter monetary policies.

BlackRock expects the correlation between bonds and stocks to remain positive, meaning bonds will unlikely protect investors from falls in stocks valuations.

"We don't think long-term yields reflect the likely persistence of inflation and higher term premia coming as a result ... Policy rates would need to hold steady or fall for Treasury returns to flip positive," it said.

Government bonds no safe haven in central bank-driven recession -BlackRock
 

Related Articles

Add a Comment

Comment Guidelines

We encourage you to use comments to engage with other users, share your perspective and ask questions of authors and each other. However, in order to maintain the high level of discourse we’ve all come to value and expect, please keep the following criteria in mind:  

  •            Enrich the conversation, don’t trash it.

  •           Stay focused and on track. Only post material that’s relevant to the topic being discussed. 

  •           Be respectful. Even negative opinions can be framed positively and diplomatically. Avoid profanity, slander or personal attacks directed at an author or another user. Racism, sexism and other forms of discrimination will not be tolerated.

  • Use standard writing style. Include punctuation and upper and lower cases. Comments that are written in all caps and contain excessive use of symbols will be removed.
  • NOTE: Spam and/or promotional messages and comments containing links will be removed. Phone numbers, email addresses, links to personal or business websites, Skype/Telegram/WhatsApp etc. addresses (including links to groups) will also be removed; self-promotional material or business-related solicitations or PR (ie, contact me for signals/advice etc.), and/or any other comment that contains personal contact specifcs or advertising will be removed as well. In addition, any of the above-mentioned violations may result in suspension of your account.
  • Doxxing. We do not allow any sharing of private or personal contact or other information about any individual or organization. This will result in immediate suspension of the commentor and his or her account.
  • Don’t monopolize the conversation. We appreciate passion and conviction, but we also strongly believe in giving everyone a chance to air their point of view. Therefore, in addition to civil interaction, we expect commenters to offer their opinions succinctly and thoughtfully, but not so repeatedly that others are annoyed or offended. If we receive complaints about individuals who take over a thread or forum, we reserve the right to ban them from the site, without recourse.
  • Only English comments will be allowed.
  • Any comment you publish, together with your investing.com profile, will be public on investing.com and may be indexed and available through third party search engines, such as Google.

Perpetrators of spam or abuse will be deleted from the site and prohibited from future registration at Investing.com’s discretion.

Write your thoughts here
 
Are you sure you want to delete this chart?
 
Post
Post also to:
 
Replace the attached chart with a new chart ?
1000
Your ability to comment is currently suspended due to negative user reports. Your status will be reviewed by our moderators.
Please wait a minute before you try to comment again.
Thanks for your comment. Please note that all comments are pending until approved by our moderators. It may therefore take some time before it appears on our website.
 
Are you sure you want to delete this chart?
 
Post
 
Replace the attached chart with a new chart ?
1000
Your ability to comment is currently suspended due to negative user reports. Your status will be reviewed by our moderators.
Please wait a minute before you try to comment again.
Add Chart to Comment
Confirm Block

Are you sure you want to block %USER_NAME%?

By doing so, you and %USER_NAME% will not be able to see any of each other's Investing.com's posts.

%USER_NAME% was successfully added to your Block List

Since you’ve just unblocked this person, you must wait 48 hours before renewing the block.

Report this comment

I feel that this comment is:

Comment flagged

Thank You!

Your report has been sent to our moderators for review
Continue with Google
or
Sign up with Email