| NEW YORK
NEW YORK Dec 12 BlackRock Inc cut its
view on the outlook for U.S. Treasuries further in a publication
distributed on Monday, warning investors to prepare for "pain."
Rising economic growth, wages and inflation will likely
continue to hurt long-term U.S. government debt in particular,
the world's largest asset manager said.
"Interest rates globally are liable to recalibrate to
reflect this 'reflationary' dynamic in 2017, pushing yields
upward, causing pain for holders of long-duration bonds," the
company wrote in a publication signed by global chief investment
strategist Richard Turnill.
"Steepening yield curves suggest investors should consider
pivoting toward shorter-maturity bonds within their fixed income
portfolios, preserving liquidity and otherwise preparing for
increased bond market volatility."
BlackRock has described itself as neutral on Treasuries
since the summer, and its downgrade now to "underweight"
reflects a negative outlook for the coming three months.
The outlook comes after a sharp decline for longer-dated
bonds already since the Nov. 8 U.S. presidential election.
President-elect Donald Trump has promised tax cuts and
infrastructure programs that could boost inflation and lead to
additional central bank interest rate hikes, to which long-dated
bonds can be especially sensitive.
A benchmark tracking 30-year Treasuries has
leapt from 2.63 percent on Election Day to 3.18 percent. Bond
yields move inversely to their prices.
The New York-based money manager said it prefers short-term
bonds and Treasury inflation protected securities to the
BlackRock also said it was raising its outlook for Japanese
stocks due to a weaker yen, better global growth,
"shareholder-friendly corporate behavior" and supportive
And the company kept its positive view on emerging market
debts and equities, including in China, despite concerns about
whether those often highly indebted countries can stomach a
world of higher rates and borrowing costs.
Chinese stocks suffered their biggest fall in six months on
Monday, hit by new regulatory curbs to rein in insurers'
aggressive investments. In an interview, Trump also questioned
the 'one China' policy that has guided U.S.-Sino relations.
BlackRock also lowered its view on European corporate debt,
which it said had grown pricey and as the Italian banking sector
(Reporting by Trevor Hunnicutt; Editing by Alan Crosby)