Is US Treasuries Facing the Best Entry Opportunity in 20 Years? BlackRock Turns Bullish Against the Trend: Unafraid of Rate Hikes, High Yields Provide a "Resilience Buffer"

According to Zhitong Finance APP, BlackRock, the world's largest asset management company, released its third quarter fixed income outlook on Thursday, explicitly stating that given the ongoing high yields of U.S. Treasuries, Treasuries currently provide investors with the strongest “downside protection” in recent years. The report believes that as inflation and economic growth gradually slow down from the highs seen in the first half, coupled with AI-driven structural changes in the economy, the fixed income market is presenting “richer investment opportunities.”

This assessment coincided with dramatic sell-offs in the U.S. Treasury market—10-year yields approaching a two-month high of 4.66%, and 30-year yields staying above 5% for several consecutive days—making BlackRock’s contrarian positioning signal noteworthy for the market.

Yield “Cushion”: 10-Year Yields Can Rise 70bps Before Turning Negative

Chi Chen, senior portfolio manager at BlackRock and co-manager of the $18 billion BlackRock Total Return Fund, wrote in the report that current yield levels provide a “substantial buffer” against further rate market sell-offs. Yields for Treasuries of 10 years or less are well above 4%, and longer-dated bonds exceed 5%, meaning the compensation investors receive for holding bonds has significantly improved, making market valuations “increasingly attractive.”

BlackRock estimates that the 10-year U.S. Treasury yield would have to rise by another 70 basis points from current levels before annual total returns turn negative. Such a “cushion” is extremely rare in the fixed income market over the past 20 years. Rick Rieder, BlackRock's Chief Investment Officer for Global Fixed Income, said in an interview: “We are in an environment where real rates are much higher than at any point over the past two decades. You get to enjoy returns from higher real rates and higher yields, and I believe rate volatility will remain relatively low.”

Disinflation and Diverging Growth: BlackRock’s Core Macro View

BlackRock’s macroeconomic views serve as the basis for its optimistic fixed income stance. The report projects that both U.S. inflation and economic growth will slow from the beginning of the year. This matches recent data—U.S. headline CPI in June fell 0.4% month-on-month, the largest monthly drop since April 2020, with year-on-year inflation receding to 3.5% from 4.2% in May.

However, Rieder also pointed out that the drivers of U.S. economic growth are becoming “more concentrated.” AI investment is the key engine of economic resilience—capital expenditures by hyperscale cloud providers have surged nearly 80% year-on-year, helping offset weakness in rate-sensitive sectors such as housing. He also warned that job growth driven by AI is not uniform: Sectors with medium AI exposure saw three-month annualized job growth of 1.63%, those with low exposure were at 1.55%, while highly exposed sectors (such as insurance) experienced negative growth (-0.29%).

This macro picture of “growth concentration” means that future fixed income returns will depend less on broad market exposure and more on active sector allocation, rigorous security selection, and diversified income sources.

Rate Hike Expectation Discrepancy: The “Hawkish Pricing” Dispute between BlackRock and the Market

The biggest current divergence between the market and BlackRock lies in monetary policy expectations for the Fed. The report says plainly: “The market is pricing the Federal Reserve policy path more hawkishly than our expectation.”

Swap contracts show traders have fully priced in a rate hike for October, expecting monetary policy to tighten by about 43 basis points by year-end. According to the CME FedWatch Tool as of July 23, the probability of a 25 basis point Fed hike in September is 54.6%. Supported by renewed tensions in U.S.-Iran relations, Treasury yields have risen for three straight days, and the probability of a 25 basis point hike in July has climbed to 37.9%.

Rieder’s base case is: The Fed will hold rates steady in both July and September and not hike rates this year, with a possible shift to easing in 2027. He believes that under the leadership of new Chair Walsh, the Fed will rely less on forward guidance and more on broader policy tools such as the balance sheet, liquidity conditions, and money supply dynamics.

This divergence is directly reflected in BlackRock’s four potential return scenarios for the Bloomberg U.S. Treasury Index:

Even in the worst-case scenario of a 100 basis point rate hike, Treasury returns remain positive—quantitative validation of BlackRock’s “downside protection” thesis.

Policy Paradigm Shift under Walsh: Shorter Statements, Less Guidance, More Tools

BlackRock views Walsh’s leadership of the Fed as the beginning of a “truly new era.” The report notes that Walsh has cut FOMC statements from an average of over 200 words to fewer than 100, explicitly stating that the more concise format “just gives you the facts.” Walsh himself described this approach as a deliberate move away from forward guidance—believing that such tools are “not suitable for the current policy crisis.”

On the inflation issue, Walsh reiterated the Fed’s commitment to the 2% target, despite inflation running above that level for more than five years. BlackRock, using web-scraped pricing and retail gasoline cost data among other alternative sources, found that price pressures may have started to moderate from recent highs.

BlackRock’s fund managers stated: “Such statements ultimately need actions to back them up, or need inflation to moderate to be validated.” This means that the credibility of Walsh-era Fed policy will ultimately be defined by actual inflation data rather than words.

Investment Strategy: Yield First, Coupons as King, Meticulous Selection

Based on the above assessments, BlackRock’s fixed income strategy can be summed up in four key principles:

First, prioritize yield rather than directional duration bets. The report favors “taking a yield-first approach rather than establishing large directional duration positions before data more clearly confirm a market shift.” Rieder calls this “dynamic patience”—making sure you’re collecting coupons while looking for the best opportunities.

Second, credit markets should focus on coupon income. The report believes credit “continues to support arbitrage trading,” and relatively low risk means “future returns may depend less on spread compression and more on earnings and compounding income growth over time.”

Third, securitized assets preferred over corporate credit. Rieder makes it clear: “The securitized market continues to offer value relative to the investment-grade credit market. The U.S. investment-grade credit market has massive supply from data centers and hyperscale cloud providers. I find U.S. investment-grade credit fundamentally unattractive.” His current favored areas include non-agency mortgages, commercial mortgage-backed securities, and agency mortgage-backed securities—the latter offering lower rate volatility than investment-grade corporate bonds.

Fourth, global diversification and tactical allocation. Rieder is diversifying into European credit markets—where data center supply is smaller and the market has already priced in three rate hikes from the ECB. He is also tactically allocating to emerging markets like Mexico, but maintains caution over USD volatility. He further boosts yield by selling rate volatility via option strategies.

The U.S. Bond Market’s “Income Window” — Once Every 20 Years?

With $15.3 trillion in assets under management, every BlackRock quarterly outlook is a global capital market “weathervane.” Amid recent U.S. Treasury market volatility, BlackRock’s message is clear and firm: A 5% long-term yield provides a sufficiently thick “cushion” so that even in the face of rate hike shocks, bondholders can still see positive returns.

This judgment is built on three pillars: inflation gradually receding from highs, economic growth becoming more concentrated but not collapsing, and the Walsh-era restructuring of the Fed’s policy framework potentially lowering rate volatility. For investors, BlackRock’s recommended approach is similarly clear: stop trying to time every move in rates, focus on collecting coupon income, and be meticulous in the securitized assets and global credit markets.

Rieder says: “In fixed income, I call it dynamic patience—make sure you’re earning coupons and finding the best opportunities.” After weathering the most dramatic rate cycle in decades, the bond market has finally returned to a place where “making money from coupons” is possible again—for BlackRock, this may well be the best entry window in 20 years.