MW World's largest asset manager forecasts bumpy ride upwards for global yields

By Jules Rimmer

With around $10 trillion under management, BlackRock's opinions about the U.S. Treasury market matter: they are bearish.

The budget bill being presented to the U.S. Senate this week has brought the nation's debt sustainability into focus. There is no shortage of commentators predicting the Republican spending plans will increase the national deficit.

As far back as 2021, BlackRock has expressed concerns about U.S. Treasurys TLT - especially the long end of the yield curve - questioning the extremely low, sometimes negative, risk premium paid by investors. A team led by the head of BlackRock Investment Institute, Jean Boivin, predicts that is going to change.

Rising term premia - the excess return demanded by investors for investing their money over a longer period of time - have been a characteristic of most global bond markets in 2025. And U.S. government bonds are more vulnerable than those of other developed markets, Boivin and colleagues told clients in a weekly note.

After the ultra-low interest rates imposed by central banks during the pandemic, BlackRock flagged the risks associated with investors changing their perception of debt sustainability and inflation. Supply disruptions have been replaced with tariff disputes as an inflationary threat, and the normalization of interest rates has forced debt-servicing costs higher.

The debt servicing costs can no longer be ignored. The BlackRock team expect a U.S. deficit to gross domestic product ratio between 5-7%, the recent Moody's U.S. credit downgrade and the budget bill will likely increase that deficit. Trade disputes with countries that have historically purchased significant amounts of U.S. bonds, such as China, Japan and Taiwan, further complicate the outlook for pricing.

While the U.S. 30-year BX:TMUBMUSD30Y dilemma is suddenly in focus, the issue with Japanese 30-year bonds BX:TMBMKJP-30Y is longstanding and the outlook there is deteriorating also. The Bank of Japan has reduced purchases of government debt just as the inflation picture is worsening. As Japanese yields rise, the country's government bonds start to provide tempting competition for domestic savers and might spark a repatriation of savings back from the U.S.

U.K BX:TMBMKGB-30Y and EU bonds BX:TMBMKDE-30Y have also been subject to rising term premia and central banks there, as in Japan, have resorted to rolling back expensive long-term issuance and replacing it with shorter duration instruments.

Boivin and his team state a clear preference for these two issuers, given they're "increasingly less correlated to fluctuations in U.S. Treasurys. Their sluggish economies also allow the Bank of England and the European Central Bank more room to cut rates.

-Jules Rimmer

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June 03, 2025 07:44 ET (11:44 GMT)

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