BlackRock upgrades U.S. Treasury rating to "Neutral," expects the Federal Reserve to begin a rate-cutting cycle this week

According to the Zhitong Finance APP, BlackRock, the world's largest asset management company, stated on Monday that as investors prepare for the Federal Reserve to potentially resume interest rate cuts as early as this week, the company has upgraded its rating on U.S. long-term Treasury bonds from "underweight" to "neutral."

Jean Boivin, head of BlackRock Investment Institute, noted in a report: "We have adjusted our tactical investment stance for the next 6 to 12 months to 'neutral' on long-term U.S. Treasuries, ending a long-standing 'underweight' strategy."

Boivin explained that while structural factors such as global accommodative fiscal policies continue to drive yields upward in the long term, U.S. Treasury yields may decline further in the short term, providing room for adjustment.

As of Monday's close, the yield on the 10-year U.S. Treasury bond fell by 2.3 basis points to 4.034%, marking a fourth consecutive week of decline. However, this yield remains above the 52-week low of 3.622% reached in September last year. U.S. Treasury prices move inversely to yields.

The CME FedWatch tool shows that investors widely expect the Federal Reserve to announce a 25 basis point rate cut following the conclusion of the FOMC meeting on Wednesday, lowering the target range for the federal funds rate to 4% to 4.25%.

In response, BlackRock also adjusted its investment stance on short-term U.S. Treasuries, with Boivin stating: "We have also downgraded short-term U.S. Treasuries from 'overweight' to 'neutral.'"

Boivin pointed out that the evident weakness in the labor market provides a reasonable basis for the Federal Reserve to cut rates, which helps alleviate inflationary pressures. Nevertheless, he emphasized that the current macroeconomic outlook remains "cloudy," and core inflation is still above the Federal Reserve's 2% target.

Latest data shows that the core CPI in the U.S. rose by 0.3% month-on-month in August, equivalent to an annualized rate of 3.1%, indicating persistent inflationary stickiness.

Despite the inflation risks, BlackRock maintains a "risk-on" stance. Boivin stated: "We believe that while U.S. economic growth is slowing, it remains resilient, and corporate earnings will continue to be robust."

He anticipates that rate cuts will support U.S. stocks in a scenario where the economy slows significantly but does not fall into recession, particularly benefiting growth themes represented by artificial intelligence.

Boivin added that market drivers are shifting from previous uncertainties related to tariffs and policies to the interplay between inflation, economic growth, and government debt. "In this environment, rate cuts will help boost investor confidence and may reignite corporate hiring."

In terms of long-term strategic allocation, BlackRock still maintains an "underweight" stance on long-term government bonds, preferring to allocate to inflation-linked bonds.

Boivin noted that distinctly different macro scenarios may emerge in the coming months: if the labor market weakens further, rate cuts may not be sufficient to offset the pressures on risk assets, and BlackRock will be prepared to reduce risk exposure; if hiring activity rebounds quickly, inflationary pressures may rise again, leading investors to demand higher risk compensation for holding long-term U.S. Treasuries, potentially reigniting concerns about the Federal Reserve's independence.

On Monday, the three major U.S. stock indices closed higher. The S&P 500 index rose by 0.47%, the Nasdaq index increased by 0.94%, both reaching historical highs; the Dow Jones Industrial Average rose by 0.11% BlackRock believes that the Federal Reserve's policy decision this week will become an important turning point for global markets. If interest rate cuts are successfully implemented, and with inflation under control and the economy maintaining growth, both the US stock market and long-term US Treasury bonds will receive support. However, the market also needs to be wary of the potential risk of inflation rising again