BlackRock upgrades short-term Treasuries and cuts U.S. stocks to neutral

BlackRock's Investment Institute said it is upgrading U.S. Treasuries — overweighting short-term Treasuries and moving long-term Treasuries to neutral — and cutting U.S. equities to neutral from overweight after keeping Treasuries underweight for most of the past six years. The Oct. 12 weekly note frames the equity cut as short-term risk management for potential volatility around the AI buildout, not a change in its AI conviction, with the 10-year yield around 5.25%.

What BlackRock changed

BlackRock's Investment Institute said in its Oct. 12 weekly commentary that it is upgrading U.S. Treasuries and cutting its view on U.S. equities to neutral from overweight. The research arm favors short-term Treasuries, lifting that sleeve to overweight, and moved long-term Treasuries to neutral. It described the equity cut as a short-term risk-management step to help fund the bond upgrade and to manage potential volatility around the AI buildout — not a retreat from its AI thesis.

The Treasury underweight had been a portfolio "mainstay" for most of the last six years, the note said, with only brief stretches at neutral. Jean Boivin, head of the BlackRock Investment Institute, Rick Rieder, BlackRock's chief investment officer of global fixed income, and Wei Li, global chief investment strategist, are named as authors on the PDF byline.

Why yields forced the call

The 10-year Treasury yield has risen 110 basis points this year to around 5.25%, driven mainly by higher real interest rates rather than inflation expectations or term premium, the institute wrote, after yields surged to 24-year highs above 5.3%.

Since January, markets have priced in 160 additional basis points of Fed tightening over the next 12 months. BlackRock called that overdone. At current yields, it said its analysis implies a 75-basis-point cushion against further yield increases over 12 months before total returns turn negative, which supports adding Treasuries, especially at the front end.

How the portfolio math shifts

BlackRock said it is adding Treasuries across the curve, with short-term bonds the preferred expression. Long-term Treasuries move to neutral because higher yields now offer better compensation for interest-rate risk, in the institute's view. The upgrades are partly funded by closing the U.S. equity overweight to neutral and by taking U.S. agency mortgage-backed securities to neutral after using them as a stable income sleeve.

The firm also trimmed its Japanese government-bond underweight, held since July 2023 when 10-year JGB yields were at 0.4% to 0.5%, compared with above 3% now. Emerging-market equities stay overweight. Inside the new U.S. equity neutral, BlackRock still prefers AI and technology and said its fundamental conviction on AI remains intact.

What this is — and is not

The weekly note is a BlackRock Investment Institute research view on tactical positioning. It is not a trade blotter for BlackRock's funds, and the document itself says it is not advice on any particular fund, strategy or security. CNBC separately reported that BlackRock manages more than $15.3 trillion in assets, framing why the call draws market attention.

Why the call lands now

Global government bonds saw another volatile week, with 10- and 30-year U.S. Treasury yields hitting their highest levels since 2002 before retreating after strong bond auctions, the institute wrote. Against that backdrop, ending a multi-year Treasury underweight is less a sudden conversion to duration bulls than an income decision: yields have reset toward the higher-rate regime the institute says it has long expected.

The equity downgrade sits next to that income call. Closing an overweight funds the bond add and reduces exposure amid potential volatility around the AI buildout. FactSet data cited in the note shows third-quarter earnings for S&P 500 companies are expected to grow nearly 30% year-on-year. The institute calls the cut a short-term risk-management move, saying investors must be more dynamic in today's volatile macro and market regime.

Shares and the week ahead

BlackRock shares were last at $1,073.28 as of about 3:35 p.m. Eastern on Tuesday, down $10.64, or 0.98%, from Monday's close of $1,083.92, according to CNBC quote data. Yahoo Finance's delayed daily chart showed a similar path, with Tuesday's last print near $1,072.57 after Monday's close of $1,083.92. The 10-year Treasury yield was near 5.22% on Yahoo's ^TNX delayed feed around the same session.

The institute flagged U.S. CPI and PPI this week as the first look at September inflation. "We are managing near-term risk, not changing our core convictions," the note said, adding that the firm remains constructive on AI and ready to add risk again as visibility improves.