Picture your Future. Save for it by earning 1.5% on a 1-year Term Deposit Account! Learn more.

BlackRock Commentary: Income in the new macro regime

Jean Bovin – Head of BlackRock Investment Institute, together with Wei Li – Global Chief Investment Strategist, Alex Brazier – Deputy Head, and Bruno Rovelli – Chief Investment Strategist for Italy all forming part of the BlackRock Investment Institute, share their insights on global economy, markets and geopolitics. Their views are theirs alone and are not intended to be construed as investment advice.

Key Points

Why we favor bonds: We see bond yields staying high in the new macro regime – that means income is back as a portfolio driver. We stay nimble and granular across fixed income.

Market backdrop: U.S. stocks rallied from a four-week low last week after tech earnings beat. Yields fell even as data confirmed slowing growth and persistent wages and inflation.

Week ahead: This week we see major central banks hiking rates again. We don’t see cuts this year. We also expect U.S. jobs data to show a tight market still fueling wages.

Income is back as a portfolio driver as we see interest rates staying high in the new regime of macro and market volatility. We like bonds for income even if we don’t expect them to offset risk-asset slides as much as they did in the past – or gain in price from falling yields. We favor very short-term, high-quality government paper and emerging market (EM) local currency debt. We also see value in high-quality credit as we keep risk low on a six- to 12-month tactical horizon.

Yield is back: The share of fixed income indexes yielding over 4% is at its highest level since 2008 (see the chart). Global investment grade (IG) credit has come roaring back after a long drought (dark orange bars). We like income in bonds as a result. We also like that we can earn decent income from high-quality bonds without reaching into riskier parts of fixed income or even equities for dividends. We favor income in these bonds but don’t think they’ll play the ballast role of the past in portfolios. Policy rates used to fall quickly as an economic downturn struck, pushing yields lower – but we think sticky inflation makes that unlikely. That’s why we think long-term government bonds’ ability to offset selloffs in risk assets will be less now: We don’t see major central banks coming to the rescue of the economy with rate cuts this year. We see the Federal Reserve and European Central Bank hiking rates again this week even as growth takes a hit.

Leaning into income

In the new macro regime of heightened growth and inflation volatility, we like bonds for income rather than earning returns from falling yields or using them as a portfolio ballast.

We’re tactically overweight very short-term, high-quality government paper. Income is attractive, with limited credit and duration risk – or sensitivity to interest rate swings. Yet risks over raising the U.S. borrowing cap loom, with a deadline that could come sooner than initially expected as tax revenue comes in. We think a resolution will ultimately be reached. We see only a temporary rise in selected Treasury bill yields as the date nears when the U.S. Treasury might run into trouble making payments or need to prioritize debt payments over other obligations. Still, we could see market volatility and risk assets come under pressure as in past episodes. We remain modestly underweight U.S. stocks.

We think investment grade credit offers good income, with yields around 5% globally. We’re tactically overweight European investment grade and prefer it to U.S. peers given more attractive valuations and its shorter duration. We put our new nimble playbook to work in March, cutting U.S. investment grade to neutral from overweight. We see less room for higher returns from tightening credit spreads but also see a decent amount of income with relatively limited risk compared with high yield. Still, we’re monitoring the impact of tighter credit and financial conditions as higher interest rates hit economic growth and reverberate through the banking sector. We’re also tactically overweight EM local currency debt on China’s powerful economic restart, peaking interest rate hikes and a broadly weaker U.S. dollar.

Bonds over stocks

Tactically, we prefer income from inflation-linked bonds over the dividend income provided by developed market (DM) equities. Equities can offer a sort of inflation protection if companies can pass on higher prices. But that depends on stocks reflecting the likely outlook for interest rates and growth – and we don’t think DM stocks are pricing the damage from higher rates that we see ahead. That’s a risk to dividends in the next 12 months – and the dividend yield of the S&P 500 is less than half of the 3.43% yield on the U.S. 10-year Treasury.

Bottom line: We see rates staying higher for longer in the new regime. That’s why we favor bonds for income. We like very short-term, high-quality government paper, EM local currency debt and high-quality credit.

Market backdrop

U.S. stocks rallied from a four-week low last week after tech earnings beat expectations, helping offset renewed regional bank woes. The U.S. two-year Treasury yield fell back near 4.0% even as the market eyes a Fed rate hike this week. U.S. PCE data showed consumer spending losing momentum over the course of the first quarter. Strong U.S. wage growth pointed to inflation settling well above 2% policy targets – why we believe hopes for rate cuts this year are misplaced.

This week’s focus will be on the Fed and ECB policy rate decisions. We think they’ll hike interest rates again – and we don’t see major central banks coming to the rescue with rate cuts this year as inflation remains sticky. We’re also watching U.S. jobs data where we expect to see ongoing labor market tightness. That is keeping wage growth and core inflation elevated.

Week Ahead

May 2: Euro area inflation and bank lending; U.S. job openings

May 3: Fed policy decision; U.S. ISM services PMI

May 4: European Central Bank (ECB) policy decision

May 5: U.S. payrolls; China Caixin services PMI

BlackRock’s Key risks & Disclaimers:

This material is not intended to be relied upon as a forecast, research or investment advice, and is not a recommendation, offer or solicitation to buy or sell any securities or to adopt any investment strategy. The opinions expressed are as of 1st May, 2023 and may change. The information and opinions are derived from proprietary and non-proprietary sources deemed by BlackRock to be reliable, are not necessarily all-inclusive and are not guaranteed as to accuracy. As such, no warranty of accuracy or reliability is given and no responsibility arising in any other way for errors and omissions (including responsibility to any person by reason of negligence) is accepted by BlackRock, its officers, employees or agents. This material may contain ’forward looking’ information that is not purely historical in nature. Such information may include, among other things, projections and forecasts. There is no guarantee that any forecasts made will come to pass. Reliance upon information in this material is at the sole discretion of the reader.

The information provided here is neither tax nor legal advice. Investors should speak to their tax professional for specific information regarding their tax situation. Investment involves risk including possible loss of principal. International investing involves risks, including risks related to foreign currency, limited liquidity, less government regulation, and the possibility of substantial volatility due to adverse political, economic or other developments. These risks are often heightened for investments in emerging/developing markets or smaller capital markets.

Issued by BlackRock Investment Management (UK) Limited, authorized and regulated by the Financial Conduct Authority. Registered office: 12 Throgmorton Avenue, London, EC2N 2DL.

MeDirect Disclaimers:

This information has been accurately reproduced, as received from  BlackRock Investment Management (UK) Limited. No information has been omitted which would render the reproduced information inaccurate or misleading. This information is being distributed by MeDirect Bank (Malta) plc to its customers. The information contained in this document is for general information purposes only and is not intended to provide legal or other professional advice nor does it commit MeDirect Bank (Malta) plc to any obligation whatsoever. The information available in this document is not intended to be a suggestion, recommendation or solicitation to buy, hold or sell, any securities and is not guaranteed as to accuracy or completeness.

The financial instruments discussed in the document may not be suitable for all investors and investors must make their own informed decisions and seek their own advice regarding the appropriateness of investing in financial instruments or implementing strategies discussed herein.

If you invest in this product you may lose some or all of the money you invest. The value of your investment may go down as well as up. A commission or sales fee may be charged at the time of the initial purchase for an investment. Any income you get from this investment may go down as well as up. This product may be affected by changes in currency exchange rate movements thereby affecting your investment return therefrom. The performance figures quoted refer to the past and past performance is not a guarantee of future performance or a reliable guide to future performance. Any decision to invest in a mutual fund should always be based upon the details contained in the Prospectus and Key Information Document (KID), which may be obtained from MeDirect Bank (Malta) plc.

Join MeDirect today to access the tools you need to put your money to work on your own terms.

Latest news articles

Playing demographic divergence now
All News

BlackRock Commentary: Playing demographic divergence now

The working-age populations in developed markets (DMs) are dwindling, contrasting with the growth observed in emerging markets (EMs). This trend adversely affects economic growth in DMs while bolstering growth prospects in EMs—a divergence that, according to BlackRock, is widely evident in asset valuations.

Hacktivism is hacking but for a political or social cause, rather than just for money. This article explores the threats from hacktivists and the ways to defend yourself and your organisation.
All News

As elections loom, beware of hacktivism

Hacktivism is hacking but for a political or social cause, rather than just for money. This article explores the threats from hacktivists and the ways to defend yourself and your organisation.

When building an investment portfolio, make sure to keep track of the fees and expenses you are being charged to trade or hold specific assets. This will help you ensure you enjoy the best possible returns from your money.
All News

Investing: Understanding Fees and Expenses

When building an investment portfolio, make sure to keep track of the fees and expenses you are being charged to trade or hold specific assets. This will help you ensure you enjoy the best possible returns from your money.

Experience better Banking

The sooner you start managing your money, your way, using the best-in-class tools, the sooner you’ll see results. 

Sign up and open your account for free, within minutes.



We strive to ensure a streamlined account opening process, via a structured and clear set of requirements and personalised assistance during the initial communication stages. If you are interested in opening a corporate account with MeDirect, please complete an Account Opening Information Questionnaire and send it to corporate@medirect.com.mt.

For a comprehensive list of documentation required to open a corporate account please contact us by email at corporate@medirect.com.mt or by phone on (+356) 2557 4444.