BlackRock: Long-Term US Treasury Crisis Looms in 2025, Short-Term Debt Becomes a "Hot Cake"

BlackRock fixed income portfolio managers said that holding longer-term interest rate exposures "looks risky" in 2025. According to BlackRock's 2025 investment direction report, analysts are favoring 3-7 year US short-term government bonds because they are focusing on yield and yield curves rather than term and spreads. BlackRock highlighted the iShares 3-7 Year Treasury Bond ETF (IEI) and the iShares Flexible Income Active ETF (BINC). BlackRock's head of macro credit research, Amanda Lynam, said, "A steady economic growth potential inflation policy measures have weakened our enthusiasm for long-term bonds." BlackRock analysts also expect the expansion of the US federal deficit to lead to an increase in new US Treasury issuances, especially long-term US Treasury bonds. This will help maintain rate stability. They also anticipate a normalization of term premiums, "which could lead to a 1.3% increase in 10-year bond yields." Finally, the Federal Reserve's quantitative tightening policy could be unfavorable for long-term bond yields. "The Fed may choose to reinvest more funds into shorter-term securities to support mortgage-backed securities," Lynam said.