Weekly investment commentary en us 20261012 upgrading us treasuries to lock in income

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Weekly commentary October 12, 2026

Upgrading U.S. Treasuries to lock in income • We upgrade U.S. Treasuries, preferring short-term bonds, as higher yields Jean Boivin improve potential returns, partly funded by downgrading U.S. equities to neutral. Head – BlackRock • Global bonds swung sharply last week, with 10- and 30-year U.S. Treasury yields Investment Institute hitting 24-year highs before retreating after strong bond auctions. • U.S. CPI and PPI offer the first look at September inflation this week. We watch for signs that could shift Fed expectations and Treasury yields. Rick Rieder Higher yields and potentially excessive Fed tightening expectations create room to Chief Investment Officer of Global Fixed Income – unwind our U.S. Treasury underweight – a mainstay for most of the last six years. BlackRock We upgrade Treasuries, favoring short-term bonds. In turn, we take profits: downgrading U.S. equities to neutral to manage potential volatility around the AI buildout and trimming our Japanese government bond (JGB) underweight. We Wei Li retain our conviction in AI fundamentals and preference for AI within U.S. equities. Global Chief Investment Strategist – BlackRock Anatomy of a 5% yield 10-year U.S. Treasury yield decomposition, 2005–26 8% ACM term premium Implied real rate Inflation compensation Nominal yield 6%

-2% The figure shown relates to past performance. Past performance is not a reliable indicator of current or future results. The ACM term premium is a model-based estimate subject to uncertainty. Source: BlackRock Investment Institute, with data from LSEG Datastream and the Federal Reserve Bank of New York, October 2026. Notes: The decomposition is illustrative rather than estimated in full by a model. Its implied real-rate component is calculated by subtracting inflation compensation and the Visit BlackRock Investment ACM term premium from the nominal yield. Inflation compensation is based on 10-year breakeven inflation. Institute for insights on the The 10-year Treasury yield has risen 110 basis points this year to around 5.25%, global economy, markets driven mainly by higher real interest rates rather than inflation expectations or and geopolitics. term premium. Two forces are behind the rise in real rates: intensifying competition for capital is pushing up the neutral rate while Middle East tensions and higher oil prices have driven a sharp reversal in Fed rate expectations. Since January, markets have priced in 160 additional basis points of Fed tightening over the next 12 months. We think that is overdone. With term premium averaging around 75 basis points since September, higher yields offer a more attractive entry point. At current yields, our analysis suggests a 75-basis-point cushion against further yield increases over 12 months before total returns turn negative. That supports adding U.S. Treasuries, especially at the short end, where we see the greatest scope for Fed tightening expectations to unwind.

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We are adding Treasuries from across the curve. For most of the last six years, we’ve been underweight Treasuries, turning neutral in spots. Now, yields have reset toward our long-held…