BlackRock upgrades US bond rating to "neutral", expects the Fed to start cutting interest rates this week.

The world's largest asset management company, BlackRock, said on Monday that as investors prepare for the possibility of the Federal Reserve resuming interest rate cuts as early as this week, the company has upgraded its rating on US long-term bonds from "underweight" to "neutral." Jean Boivin, head of BlackRock's Investment Institute, stated in a report: "We have adjusted our tactical investment stance on long-term US bonds to 'neutral' for the next 6 to 12 months, ending the long-standing 'underweight' strategy." Boivin explained that while global loose fiscal policies and other structural factors continue to push yields higher in the long term, in the short term, US bond yields may further decrease, providing room for adjustments. As of the close of trading on Monday, the yield on the 10-year US Treasury bond fell by 2.3 basis points to 4.034%, marking the fourth consecutive week of declines. However, this yield is still higher than the 52-week low of 3.622% touched in September last year. US bond prices and yields move in opposite directions. The CME FedWatch tool indicates that investors generally expect the Federal Reserve to announce a 25 basis point rate cut after the conclusion of the FOMC meeting on Wednesday, lowering the federal funds target rate range to 4% to 4.25%. In response to this, BlackRock also adjusted its stance on short-term US bonds, with Boivin stating: "We have also adjusted our stance on short-term US bonds from 'overweight' to 'neutral.'" Boivin pointed out that the weak labor market provides a reasonable basis for the Fed's interest rate cuts, which helps alleviate inflation pressures. However, he emphasized that the current macroeconomic outlook remains "uncertain," with core inflation still higher than the Fed's 2% target. Latest data shows that the core Consumer Price Index (CPI) in the US rose by 0.3% in August, with an annualized rate of 3.1%, indicating persistent inflationary pressures. Despite inflation risks, BlackRock continues to maintain a "risk-on" stance. Boivin stated: "We believe that although US economic growth is slowing, it remains resilient, and corporate earnings will continue to be robust." He expects that in a scenario where the economy slows significantly but does not enter a recession, rate cuts will provide support for US stocks, especially benefiting growth themes represented by artificial intelligence. Boivin also added that market drivers are shifting from previous factors such as tariffs and policy uncertainties to a game between inflation, economic growth, and government debt. "In this environment, rate cuts will help boost investor confidence and may reinvigorate corporate hiring." In terms of long-term strategic allocation, BlackRock still maintains an "underweight" position on long-term government bonds, favoring inflation-linked bonds. Boivin pointed out that in the coming months, there may be distinctly different macroeconomic scenarios: if the labor market weakens further, rate cuts may not be enough to offset the pressure on risk assets, and BlackRock will be prepared to reduce risk exposure; if hiring activity rapidly picks up, inflation pressures may rise again, leading investors to demand higher risk premiums for holding long-term US bonds, and potentially reigniting concerns about the Fed's independence. On Monday, the three major US stock indices closed higher. The S&P 500 index rose by 0.47%, the Nasdaq index by 0.94%, both hitting record highs; the Dow Jones Industrial Average rose by 0.11%. BlackRock believes that the Fed's policy decision this week will be a crucial turning point for global markets. If the rate cut lands smoothly, with inflation under control and economic growth maintained, both US stocks and long-term US bonds will receive support, but markets should also be vigilant against the risk of inflation resurging.