Is US debt welcoming the best entry point in 20 years? BlackRock goes against the trend and sings praises: Fearless of rate hikes, high yields build "downfall resistance".

The world's largest asset management company BlackRock released its third quarter fixed income outlook report on Thursday, clearly stating that amidst the background of persistently high US bond yields, US treasuries are currently providing investors with the strongest "anti-fall protection" in recent years. The report believes that with inflation and economic growth gradually slowing down from the peak of the first half of the year, coupled with AI-driven structural changes in the economy, the fixed income market is ushering in "more abundant investment opportunities". This judgment comes as the US bond market experiences sharp sell-offs - the 10-year yield approaching a two-month high of 4.66%, and the 30-year yield remaining above 5% for multiple days - BlackRock's contrarian positioning signal is worth market attention. Yield "safety cushion": 10-year yield would need to rise by another 70 basis points to incur losses Chi Chen, a senior investment portfolio manager at BlackRock and co-manager of the $18 billion BlackRock Total Return Fund, wrote in the report that the current yield levels provide a "substantial buffer" against further sell-offs in the interest rate market. Yields on US treasuries of less than 10 years are well above 4%, while longer-term bond yields are above 5%, meaning that investors holding bonds are receiving significantly higher compensation, making market valuations "increasingly attractive". BlackRock estimates that the 10-year US treasury yield would need to rise by approximately 70 basis points from current levels to turn the total return for the year negative. This level of "safety cushion" is extremely rare in the fixed income market over the past 20 years. BlackRock's Global Chief Investment Officer for Fixed Income, Rick Rieder, stated in an interview, "We are in an environment with real interest rates far higher than the past two decades. Enjoying the returns that come with higher real interest rates and higher yields, I also believe that interest rate volatility will remain at low levels." Diverging rate hike expectations: BlackRock's "hawkish pricing" disagreement with the market The most significant divergence between the market and BlackRock is in expectations regarding Federal Reserve policy. The report bluntly states, "Market pricing of the Fed's policy path is more hawkish than our expectations." Interest rate swap contracts show that traders have fully priced in a rate hike in October, with expectations of monetary policy tightening by around 43 basis points by the end of the year. According to the CME FedWatch Tool, as of July 23, the probability of a 25 basis point rate hike by the Fed in September is 54.6%. Due to tensions escalating between the US and Iran, US treasury yields have risen for three consecutive days, with the probability of a 25 basis point rate hike by the Fed in July rising to 37.9%. Rieder's basic expectation is that the Fed will at least stand pat in July and September, not hike rates this year, and may turn dovish in 2027. He believes that under new Chairman Powell's leadership, the Fed will decrease its reliance on forward guidance and use a wider range of policy tools such as the balance sheet, liquidity conditions, and dynamics of the money supply. The direct manifestation of this disagreement is the four potential return scenarios listed by BlackRock for the Bloomberg US Treasury Index: Even in the worst-case scenario of a 100 basis point rate hike, bond returns would still be positive - this is a quantitative confirmation of BlackRock's "anti-fall protection" logic. The policy new paradigm of the Powell era: shorter statements, fewer guidelines, more tools BlackRock sees Powell leading the Fed as the beginning of a "truly new era". The report points out that Powell has reduced the FOMC statement from an average of over 200 words to fewer than 100 words, and explicitly stated that the shorter format "just gives you the facts". This approach has been described by Powell himself as deliberately moving away from forward guidance - he believes this tool is "not suitable for the current policy crisis situation". On the issue of inflation, Powell reiterated the Fed's commitment to the 2% target, despite inflation has been above that level for over five years. BlackRock tracks price pressure using alternative data sources such as web-scraping pricing and retail gasoline costs, indicating that inflation may have started to ease from recent highs. BlackRock fund managers stated, "These statements ultimately need action to support them, or a mild inflation downturn to confirm them." This means that the credibility of the Powell-era policy will ultimately be defined by actual inflation data rather than words. Investment Strategy: prioritize income, yield is king, cultivate carefully Based on the aforementioned judgment, BlackRock's fixed income investment strategy can be summarized by four core principles: First, prioritize income rather than directional duration bets. The report leans towards a strategy of "prioritizing income first, rather than taking large directional duration positions before data confirms a market shift". Rieder summarizes this as "dynamic patience" - ensuring you are earning income, and finding the best opportunities. Second, credit markets focus on income from yields. The report believes that credit "still provides support for arbitrage trades", and with relatively lower risk, "future returns may depend less on narrowing spreads, and more on the growth of profits and compounding income over time". Third, securitized assets are superior to corporate credit. Rieder explicitly states, "The securitization market still offers value compared to investment-grade credit markets. The US investment-grade credit market has a large supply from data centers and super-scale cloud service providers. I think the US investment-grade credit market is fundamentally unattractive." He currently favors specific areas such as non-agency mortgage-backed securities, commercial mortgage-backed securities, and agency mortgage-backed securities - the latter having lower interest rate volatility than investment-grade corporate bonds. Fourth, global diversification and tactical allocation. Rieder is diversifying investments in the European credit markets - where there is less supply of European data centers and the market has already factored in expectations of three rate hikes by the European Central Bank. He is also tactically allocating in emerging markets such as Mexico, but remains cautious about the volatility of the US dollar. He also thickens returns through option strategies selling interest rate volatility. A "once-in-a-20-year" income window in the US bond market? With BlackRock's $15.3 trillion in assets under management, each quarterly outlook can be considered a "barometer" for global capital markets. In the current backdrop of sharp fluctuations in the US bond market, BlackRock's core information is clear and firm: a 5% long-term yield provides a thick enough "safety cushion" that even in the face of rate hikes, bond holders can still achieve positive returns. This judgment is based on three pillars: inflation gradually easing from highs, economic growth trending towards concentration but not slowing down, and the possible reduction in interest rate volatility due to the reconfiguration of the Fed's policy framework under the Powell era. For investors, BlackRock's recommended path is equally clear: stop trying to predict the timing of every interest rate change, focus on earning income from yields, and meticulously cultivate in securitized assets and global credit markets. Rieder said, "In the fixed income field, I call it dynamic patience - meaning making sure you are earning income, and finding the best opportunities." After experiencing the most intense interest rate cycles in decades, the bond market has finally become a place to make money based on yields - and for BlackRock, this may be the best entry window in 20 years.