Blackrock Portfolio Cuts Treasuries and Bonds Amid Inflation Concerns

Financial markets may be too optimistic about the path of inflation in both the United States and the United Kingdom, according to BlackRock Inc. portfolio manager Tom Becker. That concern has led Becker to reduce exposure to government bonds in both countries, betting that stubborn price pressures will delay interest-rate cuts longer than investors currently expect.

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Becker, who co-manages the $4.1 billion BlackRock Tactical Opportunities Fund, has been actively selling long-dated US Treasuries and UK gilts since late last year. He has also increased short positions at the long end of the yield curve, reflecting his view that inflation will remain elevated enough to complicate central banks’ efforts to ease monetary policy.

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According to Becker, markets have become overly confident that inflation is on a smooth downward trajectory. While headline inflation has cooled from recent peaks, underlying price pressures remain sticky, particularly in services, wages, and housing-related costs. These factors, he argues, are likely to prevent the Federal Reserve and the Bank of England from delivering aggressive rate cuts in the near term.

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The fund’s positioning reflects a broader reassessment of inflation dynamics. Becker believes that structural forces, including tight labor markets, geopolitical tensions, and ongoing supply-chain adjustments, could keep inflation above central bank targets for longer than anticipated. As a result, long-term bond yields may face upward pressure, creating risks for investors heavily exposed to duration-sensitive assets.

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In the US, expectations for rate cuts have fluctuated sharply in recent months as economic data has repeatedly surprised to the upside. Strong consumer spending, resilient job growth, and firm wage gains have complicated the inflation outlook. While policymakers have acknowledged progress on inflation, they have also emphasized the need for sustained evidence before easing policy. Becker sees this cautious stance as justified and believes markets are underpricing the possibility that rates remain higher for longer.

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A similar dynamic is unfolding in the UK. Inflation has eased from extreme levels, but core measures remain elevated, and wage growth continues to run hot. Becker argues that the Bank of England faces an especially difficult balancing act, as it must weigh inflation risks against signs of economic slowdown. In his view, markets are too quick to assume that rate cuts will arrive soon, leaving long-dated gilts vulnerable.

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The BlackRock Tactical Opportunities Fund is designed to take flexible positions across asset classes, allowing managers to respond quickly to changing macroeconomic conditions. Becker’s decision to sell government bonds highlights his conviction that bond markets are mispricing inflation risk. He sees more downside than upside in long-term sovereign debt if inflation proves more persistent than expected.

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Beyond bonds, Becker has also been selective in other areas of the market. He has favored assets that can perform well in an environment of elevated inflation and higher interest rates, while remaining cautious on sectors that rely heavily on falling yields for support. This approach reflects a broader theme of prioritizing capital preservation and risk management amid an uncertain macro backdrop.

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The fund manager also points to fiscal policy as an additional inflationary factor. Large government deficits in both the US and the UK continue to add pressure to bond markets, increasing supply at a time when central banks are no longer large buyers of government debt. This shift in demand dynamics could further push yields higher, particularly at the long end of the curve.

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Despite his cautious outlook, Becker does not dismiss the possibility that inflation will eventually trend lower. However, he believes the path will be uneven and more prolonged than markets currently anticipate. That uncertainty, he argues, warrants a defensive stance in fixed income and a willingness to challenge consensus views.

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For investors, Becker’s strategy serves as a reminder that inflation risks have not disappeared. While markets often focus on near-term data and central bank signaling, longer-term structural forces can play an equally important role in shaping asset prices. Relying too heavily on expectations of rapid rate cuts may leave portfolios exposed if inflation proves more resilient.

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As central banks navigate the final stages of the inflation fight, volatility across bond markets is likely to persist. Becker’s decision to sell Treasuries and gilts underscores a growing divide between investors who believe inflation is largely under control and those who see lingering risks ahead.

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In this environment, flexibility and diversification remain critical. With inflation, fiscal policy, and economic growth all in flux, investors may need to reassess traditional assumptions about bonds as safe havens. The actions of BlackRock’s Tactical Opportunities Fund highlight how even large institutional investors are adapting to a world where inflation may be harder to tame than many expect.

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