For six years the largest money manager on earth wanted nothing to do with the debt of the United States government. On Tuesday that exile ended. The BlackRock Investment Institute, think tank of the world’s biggest asset manager, told clients it was buying short-term US Treasuries again — a quiet reversal that the Australian Financial Review reported as part of a wider rotation, on both sides of the Pacific, out of stocks and into fixed income.
The reason is arithmetic. Markets are fully priced for three more quarter-point rises from the Federal Reserve by mid-2027, and BlackRock thinks the market has lost its head. “We think that is overdone,” wrote Jean Boivin, head of the institute, in his note to clients. “For most of the last six years, we’ve been underweight Treasuries. Now, yields have reset toward our long-held higher-rates view, and we want to lock in some attractive income.”
To pay for the bonds, BlackRock cut US stocks to neutral, abandoning a long-held preference for the world’s largest sharemarket as insurance against volatility. The machine age has not been disavowed, only paused: the manager insists its faith in artificial intelligence and listed infrastructure holds. “We remain constructive on AI and stand ready to add risk again as visibility improves, and attractive entry points emerge,” Boivin said.
The return of income
BlackRock is not travelling alone. Kerry Craig, global market strategist at JPMorgan Asset Management, notes that real yields — what remains of a return once inflation is subtracted — have moved sharply higher across sovereign debt markets, opening strong entry points for bond portfolios. JPMorgan itself stays neutral on US Treasuries until November’s midterm elections, whose outcome could push inflation higher. But Craig sees compelling value in Australian government debt: an AAA credit rating, a modest deficit, yields that flatter it against its global peers. “If you think about strategic allocation, you’d be wanting more of those core government bonds in your portfolio because they haven’t looked that appealing in the past,” he said.
His caution is the honest broker’s one: bonds alone cannot balance a portfolio. Infrastructure, real estate and transport assets must share the weight. “You can’t solely rely on bonds to be a diversifier, but can think about them being the biggest income generator again.”
The view from Sydney
In Australia the swing is already visible in the small print of exchange-traded fund flows. “We’ve certainly seen increased interest in fixed rate bonds from Australian ETF investors in the last couple of weeks,” said Cameron Gleeson, a senior investment strategist at Betashares. Domestic buyers, he notes, are choosing Commonwealth bonds over US Treasuries — and at 5.3 per cent on the ten-year, the local paper pays well. The Reserve Bank of Australia has led its global peers in the war on inflation, forcing the cash rate to a 15-year high of 4.6 per cent across four increases this year; money markets price a one-in-three chance of a fifth rise in November and are fully priced for a move next year. Should the economy slow and the RBA reverse course, Australia’s weaker outlook gives bondholders room to profit, since falling rates push bond prices up.
The flows tell the stronger story. From July through September, net ETF flows show fixed income challenging Australian equities — an unusual turn, Gleeson says, in a market where investors have historically favoured global stocks first, domestic shares second, and bonds last. Meanwhile the American romance has cooled dramatically. In late 2024 half of all Australian ETF money going into global shares went straight into US markets; by September that share had collapsed to 7 per cent. The remainder is being spread across broader global equities and into debt. “That’s a significant change,” said Gleeson.
There is a rhythm to these things that the savers of Sydney or Perth understand better than the strategists of New York. When the world grows uncertain, money does not disappear; it changes costume. It leaves the theatre of growth, where prices dance to the announcements of technology companies and central bankers, and takes a seat in the older house, where a government promises in writing to pay you five point three per cent and usually does. The great houses of finance have now followed the small investors through that door — six years late, and saying so out loud.