BlackRock’s view supports the front end of the Treasury curve. If the Fed sounds less aggressive than markets fear this week, two-year yields have the most room to fall, which would steepen the curve. Its caution on the long end, where it still sees yields rising as competition for capital intensifies, matches the heavy-supply theme flagged this week by Fitch and S&P. Neutral positioning on US equities, with a continued tilt to AI and tech, suggests BlackRock expects volatility around policy, not a broad selloff. A dovish-leaning Fed would also cap the dollar. Higher oil remains the main risk to the “less hawkish than priced” view, since further energy-driven inflation would test it.
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BlackRock thinks the Fed will hike once more and then stop, and it is positioning for that by owning short-dated Treasuries while staying wary of long bonds.
Summary:
- BlackRock expects one more Fed rate hike by year-end but sees market pricing for further tightening as overly hawkish.
- It says the recent tightening is not the start of a new, sustained hiking cycle, even after a hotter September CPI showed broadening price pressures.
- Markets have partly scaled back hike expectations since the September meeting, moving closer to BlackRock’s view.
- BlackRock is overweight short-dated US Treasuries, favouring the front end for income and a greater breakeven buffer.
- It is neutral on long-dated Treasuries and still sees room for yields to rise as competition for capital intensifies.
- It is neutral on US equities, citing strong AI fundamentals but near-term policy volatility, and continues to favour AI and tech.
BlackRock expects the Federal Reserve to raise interest rates once more by the end of the year but sees market pricing for further tightening as overly hawkish, a view that underpins its preference for short-dated US Treasuries over longer bonds, according to the BlackRock Investment Institute’s weekly commentary.
The Fed’s policy decision this week, its second-to-last meeting of 2026, takes centre stage after a hotter-than-expected September CPI report that showed price pressures broadening. Even so, BlackRock said it does not view the recent tightening as the start of a new, sustained hiking cycle. It noted that markets have partly scaled back expectations for further hikes since the Fed’s September meeting, moving closer to its own view, though it still regards the remaining pricing as excessive.
That stance shapes BlackRock’s fixed income positioning. The asset manager is overweight short-dated US Treasuries, saying much of the repricing it had anticipated has already taken place and that expectations for further Fed hikes look too high. It favours the front end of the curve for attractive income and a greater breakeven buffer, meaning yields are high enough to absorb some further rise in rates before investors start losing money.
BlackRock is neutral on long-dated Treasuries. It said higher yields offer attractive income and a bigger cushion against further rate increases, but it still sees room for long-term yields to rise as competition for capital intensifies, a pressure that comes as governments and companies, including those investing in AI infrastructure, borrow heavily.
On equities, BlackRock is neutral on US stocks overall. It said strong AI fundamentals remain supportive, but policy uncertainty could fuel volatility in the near term. Within the market, it continues to favour AI and technology.
Taken together, BlackRock’s positioning amounts to a bet that the Fed will tighten less than markets expect, while acknowledging that the long end of the curve remains vulnerable to supply pressure and that equity gains may depend increasingly on the AI theme. The Fed’s statement and any guidance on the pace of further hikes will be the first test of that view.
This article was written by Eamonn Sheridan at investinglive.com.