BlackRock bond expert explains where not to put your money right now

A sign for BlackRock Inc hangs above their New York building.

Lucas Jackson Reuters

Because of the speed of Covid-19 vaccine distribution and potential fiscal stimulus in the U.S., the BlackRock Investment Institute is opting for a more risky approach in 2021.

The U.S. museum announced on Monday that it had overburdened government bonds and neutralized credit, while updating equities. Going “overweight” means holding fewer assets than benchmark indices, giving the credit that the asset will perform better.

Inflation is expected to push U.S. 10-year Treasury yields higher in the past few weeks, prompting a pullback for recovering stock markets as investors questioned whether rates could unprecedented incentives from central banks to be earlier than expected.

However, speaking to CNBC’s “Squawk Box Europe” on Tuesday, Scott Thiel, BlackRock’s Chief Revenue Officer, emphasized that the reversal of Treasury output was not particularly significant in context. historical figures, and real results – the ones adjusted for inflation – had remained consistently negative.

“We estimate that the economic impact of the Covid crisis will be around a quarter of the economic impact of the global financial crisis, but the stimulus is something like four times as much,” Thiel said.

“So when we try to implement some sort of rotational controlbook or play plan in this crisis, it misses many of the important aspects, and one of them is this idea that the economy will come get out of here very aggressively. “

In a note Monday, BlackRock strategists noted that a 1% rise in U.S. 10-year flat inflation rates – a measure of market inflation expectations – has typically led to a 0.9% rise in Treasury 10-year yields. year since 1998.

“But since March last year fair inflation has risen 1.2%, and yields are up just 0.5%. Yields have changed with inflation, or real yields, falling further into negative territory as a result of the that, “they said, showing how the Covid panic is different. in terms of the pace of regeneration of economic activity.

High quality growth and cyclical stock

Technology stocks have been among the main victims of the jittery spell in equity markets caused by rising bond yields, as investors refused to move away from so-called growth stocks and favored cycling names that were more economically sensitive ahead of expected economic recovery.

Stocks of growth are the stocks of companies that are seen as operating a cash flow that is stable and stable and with higher earnings in the future, with the expectation that revenue growth will outpace revenue. industry.

However, Thiel suggested that some of the key themes emerging from the coronavirus crisis – which has seen Big Tech stock market power to record highs since the March 2020 market downturn – are here to stay.

“A lot of the Covid-related trends are here to stay and can change over time, but there seems to have been a huge shift online and we expect that to continue,” Thiel said.

“But we also believe that investors need to be open to the cycle, the re-emergence of global trade, which is why we like emerging market parity and why we have partially shifted our European balance to neutral pressure. “

Thiel suggested that investors need to be open to all sides of the US-China “bipolar world” in equity markets, but expects the basic level environment to be “mission-critical.”

“That’s our new name, the idea that interest rates will rise – especially reality levels – but not be as high as they would be historically and they will be less volatile than yet that is what we saw, “he said.

BlackRock has taken a neutral stance on corporate credit and said in Monday’s note that it is now favoring equities as a result of more attractive valuations.

“Our view there on a tactical basis is that spreads go back to pre-Covid levels, flat rates themselves are very low, so from an overall return perspective, we see a greater challenge in the corporate bond market is what we do on equality markets, “Thiel explained.

“On a strategic basis, the only idea is that valuations look pretty full and we prefer equalities.”