BlackRock Investment Institute Videos

Market take

Weekly video_20260126

Michel Dilmanian

Portfolio strategist, BlackRock Investment Institute

Opening frame: What’s driving markets? Market take

Camera frame

Title slide: Immutable economic laws in action again

Developed market government bonds yields jumped last week after fresh U.S. tariff threats – though the headlines focused on the selloff in Japanese Government Bonds. As the U.S. backed off from new tariffs, DM yields fell – showing how immutable economic laws again came into play.

1: More corporate bonds coming

Bond markets have started the year with a bang. Developed market bond yields jumped – particularly in Japan where 40-year yields saw historic spikes. These moves quickly grabbed headlines but were short lived as immutable economic laws limited extreme outcomes yet again.

Meanwhile, U.S. corporate bond issuance is forecast to hit a record-high this year as companies are leveraging up to fund the AI buildout, as described in our Global Outlook. This is a feature of the current market environment, in our view.

2: Japan’s fiscal concerns stoking volatility

The headlines around the government bond selloff focused on JGB yields . But we think the story is a global one, where geopolitics are running up against immutable economic laws – specifically, the need for sizeable foreign investment to finance U.S. debt.

Any spike in long-term bond yields could quickly raise questions about debt sustainability. This has already played out, with the result being a moderation of policies.

3: Leveraging up

This risk of higher bond yields comes against a corporate sector that’s leveraging up. Public and private balance sheets have diverged sharply since the Financial Crisis, but U.S. corporates have room to take on more leverage, and they’re doing so from a position of strength.

Yet more leverage overall makes the financial system more vulnerable to shocks - like the yield spike we saw in Japan last week.

Against this backdrop of a surge in issuance, we’re more selective in fixed income. We prefer high yield over investment grade debt, and short-term over long-term credit. We also prefer direct lending in private credit and favor established, large borrowers.

Outro: Here’s our Market take

The recent spike and subsequent decline in yields shows how immutable economic laws can limit extreme outcomes. We stay underweight long-term DM government bonds – but still see select opportunities in fixed income.

Closing frame: Read details: blackrock.com/weekly-commentary

BlackRock Bottom Line: 2024 Global outlook

Speaker: Wei Li, Global Chief Investment Strategist, BlackRock Investment Institute

Script:

Higher interest rates and greater volatility define the new regime we’re in. In turn, that’s creating greater dispersion of returns.

We think investors will benefit from taking a more active approach to portfolios as we head into next year. 

Here’s our three investment themes for 2024: number one, managing macro risk; number two, steering portfolio outcomes; and number three, harnessing mega forces.

BlackRock Bottom Line open

Title: BlackRock Investment Institute 2024 global outlook

Our first theme is managing macro risk. Production constraints mean central banks face tougher trade-offs between inflation and growth – they can’t respond to faltering growth like before. This leads to a wider set of outcomes and a more uncertain macro outlook.

We don’t think investors should wait for the macro environment to improve. Instead, they should look to neutralize macro exposures or be very deliberate about which risks they take.

Our second theme is steering portfolio outcomes. We believe the new regime rewards an active approach to portfolios. Greater volatility and dispersion of returns create space for investment expertise to shine – that involves being more dynamic with indexing and alpha-seeking strategies, while staying selective.

Our third theme is harnessing mega forces. We see five structural shifts reshaping markets and driving returns now and in the future. We think they have become important portfolio building blocks on their own.

The bottom line is: Going into 2024 in the new regime, we want to put money to work. We believe investors should take a more active approach to their portfolios and be deliberate in taking portfolio risk.