BlackRock downgrades IG credit to neutral, ups exposure to high-yield bonds

FILE PHOTO: A sign for BlackRock Inc hangs above its building in New York U.S., July 16, 2018. REUTERS/Lucas Jackson/File Photo

LONDON (Reuters) - The BlackRock Investment Institute said on Tuesday it downgraded investment grade debt to neutral, citing little room for spread compression given that deeper rate cuts and more asset purchases are an unlikely policy response.

However, BlackRock BLK.N raised its "overweight" on high-yield bonds.

“We see the very high implied default rates as overly pessimistic, and high yield remains an attractive source of income in a yield-starved world,” BlackRock wrote in its note to clients.

BlackRock also downgraded emerging market local currency debt to underweight, saying many countries had limited policy space to cushion the pandemic shock and insufficient capacity to rein in virus spread.

Reporting by Karin Strohecker, editing by Huw Jones