SUPERNEWS

Macro

BlackRock: Shift Cash to Bonds for 5.3% Yields Amid Rate Cuts

BlackRock advises moving cash to bonds amid rate volatility, with yields at two-decade highs and potential Fed cuts ahead.

By Max Weldon

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5/3, 15:25 EDT
S&P 500
iShares 20+ Year Treasury Bond ETF
iShares 7-10 Year Treasury Bond ETF
iShares Core U.S. Aggregate Bond ETF
BlackRock, Inc.
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Key Takeaway

  • BlackRock advises moving cash into bonds now, citing high yields like the 5.3% for Markit iBoxx USD Liquid Investment Grade Index in March 2024.
  • With Fed rate hikes paused and potential cuts priced in for year-end, bonds offer a compelling opportunity for investors to increase fixed-income allocation.
  • BlackRock recommends dollar cost averaging into bonds, highlighting options like iShares Core U.S. Aggregate Bond ETF (AGG) with a 4.81% yield.

Bond Market's New Appeal

Investors are being advised to reconsider the bond market as a viable investment option, especially given the current volatility surrounding interest rates and the Federal Reserve's monetary policy. The recent dip in the 10-year Treasury yield below 4.5% highlights a potential shift in the market, making it an opportune time for investors with cash on the sidelines to start moving into bonds. Steve Laipply, global co-head of iShares fixed income ETFs at BlackRock, emphasizes the attractiveness of yields at these levels, noting that they are at heights not seen in two decades. For example, the Markit iBoxx USD Liquid Investment Grade Index was yielding 5.3% in March 2024, a significant increase from previous years.

Rate Cuts on the Horizon

The Federal Reserve's decision to hold interest rates steady since July 2023, coupled with a weaker-than-expected jobs growth report for April and a surprise increase in the unemployment rate, has led traders to anticipate two rate cuts by the end of the year. This expectation is based on the CME Group’s FedWatch tool. Bonds have historically performed well during periods when the Fed holds rates steady, and this cycle appears to be no exception, albeit with some bumps along the way. Laipply suggests dollar-cost averaging as a strategy to increase fixed-income allocation, noting that many investors are currently underweight in this asset class.

Investment Strategies and Options

BlackRock recommends a holistic approach to investing in bonds, suggesting a mix of individual bonds, bond funds, and ETFs for diversified exposure. Intermediate duration bonds are seen as a good starting point, with BlackRock's iShares Core U.S. Aggregate Bond ETF (AGG) and iShares Core Total USD Bond Market ETF (IUSB) offering broad exposure to U.S. investment-grade bonds. For those looking for actively managed options, BlackRock's Flexible Income ETF (BINC) provides an attractive yield with a focus on flexibility and income generation.

Street Views

  • Steve Laipply, BlackRock (Bullish on bonds):

    "It’s time to start migrating back to fixed income, especially with yields at these levels." "It is going to probably be impossible to call the peak in rates." "History tells us that investors can miss out on locking in higher yields if they wait for a clear, definitive answer on rate cuts."