Global bond enthusiasm rises, BlackRock: better than U.S. Treasuries, focus on Bitcoin and new opportunities in AI
Jean Boivin, head of BlackRock Investment Institute, stated that due to high inflation, the Federal Reserve will remain cautious next year, and investors should focus on global bonds rather than long-term U.S. Treasuries. He pointed out that although inflation will not spiral out of control, the Federal Reserve will not cut interest rates, and the current phase is one of adjustment rather than easing. Boivin emphasized that BII is more inclined to hold U.S. corporate bonds and bonds from other regions, warning that long-term bond yields could approach 5%. At the same time, he expressed concerns about the growth of U.S. debt and deficits, believing that repayment costs will become a market issue
According to the Zhitong Finance APP, Jean Boivin, head of BlackRock Investment Institute, stated in an interview at BlackRock's New York office on Wednesday that due to persistently high inflation rates, the Federal Reserve will have to maintain a wait-and-see attitude next year, and investors should favor global bonds over longer-term U.S. Treasuries. He emphasized that while inflation will not spiral out of control, the Federal Reserve will not align with the market by cutting interest rates; the current situation is not the beginning of an easing cycle, but rather an adjustment or recalibration.
Since the Federal Reserve began cutting interest rates in mid-September, the yields on two-year, five-year, and ten-year U.S. Treasuries have risen from around 3.5% to over 4%. Traders have reduced the likelihood of significant rate cuts based on strong economic data, expecting a reduction of slightly more than 3/4 percentage points over the next 12 months, bringing it to around 3.7%.
Boivin believes that the Federal Reserve has little room to lower rates below 4%. This week, several Federal Reserve officials also expressed a cautious attitude, planning to bring rates down to around 3% next year, which is considered a neutral range. However, the tax cuts, deregulation, and tariff policies proposed by incoming President Trump could stimulate economic growth and inflation during his second term.
The BlackRock Investment Institute (BII) released its 2025 Global Outlook, indicating that the department has reduced its holdings of long-term U.S. Treasuries both tactically and strategically. Boivin pointed out that BII prefers to hold 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.
The yield on the 10-year U.S. Treasury is very sensitive to surprises, and the market is reassessing long-term trends based on short-term data, which reinforces volatility. Although the yield on the 10-year bond has retreated after testing the post-election peak of 4.5% last month and has been trading around 4.2% this week, Boivin still warned that any surge in long-term bond yields poses risks, and it is possible that the 10-year bond yield could sustainably approach or remain near 5%.
Additionally, Boivin reiterated concerns about the rapid growth of U.S. debt and ongoing deficits, warning that the cost of servicing this debt will become an issue for the market. Although newly appointed Treasury Secretary Scott Bessenet has stated that he will reduce the budget deficit to 3% of GDP over the next few years, Boivin believes that the deficit issue has been sidelined, and no one supports austerity measures. He anticipates that the issue of debt servicing costs could trigger periodic premium adjustments.
In its investment strategy for the coming year, BII also highlighted the value of Bitcoin as a diversification tool, especially during Trump's presidency, as Bitcoin's unique return drivers will reduce its correlation with traditional risk assets. The first spot Bitcoin ETF launched by BlackRock this year has accumulated nearly $50 billion in assets, making it one of the most successful ETF launches in history.
At the same time, BII pointed out that major forces such as artificial intelligence, intensified geopolitical fragmentation, aging populations, and the transition to green energy are changing long-term trends, leading to a range of different outcomes. Investors should place greater emphasis on tactical views, reconsider their portfolios, such as the traditional 60/40 strategy, and consider other investment options including private credit and infrastructure. It is expected that private market assets will double by the end of this century, reaching nearly $25 trillion In terms of the stock market, BII is more optimistic about the U.S. stock market, believing that artificial intelligence and profit growth expansion are expected to benefit it, while Japan has performed outstandingly in corporate reform and inflation-driven profit pricing power