BlackRock says this is the ‘last best opportunity’ to buy these bonds

Investors should take advantage of spikes in bond yields while they can and reinvest their cash, according to BlackRock’s iShares strategy team. Surprisingly high readings for both economic growth and inflation have buoyed bond yields in 2024. The 10-year Treasury yield hit a new high for 2024 earlier this week. But according to a spring investment outlook from iShares, this won’t last long. “We believe the recent back up in rates is probably the last best opportunity to extend duration,” wrote Gargi Pal Chaudhuri, chief investment and portfolio strategist, Americas, at BlackRock. US10Y YTD mountain The benchmark 10-year Treasury yield has been rising in 2024. Duration is a way to measure how a bond’s value changes in response to interest rates. Generally speaking, the value of a bond goes up as interest rates go down, with longer-dated bonds seeing the biggest gains. And while traders keep dialing back their expectations for the number of Fed rate cuts this year, the consensus is that the central bank’s benchmark rate has already peaked at the current 5.25%-5.50%. That means that long-term bonds should have limited downside risk from here, with the potential to jump in price whenever the Fed does cut. Many investors seem ill-prepared to take advantage of that scenario. While bond funds have been seeing inflows this year, there are still plenty of investors with excess cash in short term accounts. For example, retail investors had parked $2.4 trillion in money market funds as of the last week of March, according to the Investment Company Institute . “We do still see investors as being overweight in cash and underweight duration in their portfolios,” Kristy Akullian, head of iShares investment strategy, Americas at BlackRock, told CNBC. Specifically, the iShares team sees value in the so-called intermediate part of the market. Different funds that offer that type of exposure include the iShares 3-7 Year Treasury Bond ETF (IEI) , the SPDR Portfolio Intermediate Term Treasury ETF (SPTI) and the Vanguard Intermediate-Term Treasury ETF (VGIT) . There are also index funds for corporate credit in this timeframe. “It’s not just how much duration you have in your portfolio, but it’s where you get it. So really where on the curve matters, and we prefer to be in about that 5 year spot” Akullian said. There has already been a move toward those bonds in 2024, though the short-term results haven’t been great. Intermediate duration bond ETFs saw $17 billion of inflows during the first quarter, making it one of the most popular categories of funds, according to Strategas Research. Investors shouldn’t go overboard with adding duration, because the long-term bonds on the market carry extra risk, Akullian said. “The trouble with the long end is that we think it could still come under pressure because of supply,” she said. For investors who do want to take on a bit more risk, such as through adding high yield bonds in addition to duration, Akullian said that it makes sense to look at active funds, like the BlackRock Flexible Income ETF (BINC) . Riskier bonds in general may not be worth their current price, even if rates fall. “The conundrum right now is that all-in yields look really attractive, but at the same time credit spreads are really tight,” she said.