Market take
Weekly video_20260526
Beata Harasim
Senior Investment Strategist
BlackRock Investment Institute
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CAPITAL AT RISK. MARKETING MATERIAL.
Opening frame: What’s driving markets? Market take
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Title slide: The need to diversify diversifiers
Surging long-term bond yields are reinforcing one of our key views: traditional portfolio hedges are less reliable in today’s macro regime. We think investors need a Plan B — built around more unique sources of return.
1: Traditional diversifiers under pressure
Long-term government bond yields have surged again, with U.S. 30-year Treasury yields reaching their highest levels in roughly two decades.
That matters because government bonds have historically helped cushion portfolios when risk assets fall. But that role is being tested. Since the onset of the Middle East conflict, U.S. Treasuries have come under further pressure as investors have focused on sticky inflation, energy supply risks and persistent fiscal deficits.
Gold, often viewed as an inflation hedge, has also fallen over this period. That reinforces our view that the old playbook for diversification is becoming less reliable.
2: A shifting macro regime
Why is this happening? We think markets are adjusting to a new macro regime shaped by mega forces.
Geopolitical fragmentation is increasing the risk of supply shocks. Persistent fiscal deficits are putting upward pressure on long-term borrowing costs. And the AI buildout is driving major investment demand.
Together, these forces point to higher-for-longer inflation and interest rates than markets were used to before the pandemic. That is why we prefer short- and medium-term U.S. government bonds over long-term bonds. We also continue to like inflation-linked bonds on strategic horizons over five years or more.
3: Building a plan B
We still stay pro-risk, supported by solid corporate earnings and the AI theme. Strong earnings growth has helped equities absorb the drag from higher rates so far.
But at the total portfolio level, we think investors need broader diversification sources. We favor idiosyncratic return streams, especially hedge funds and private markets, where returns are less dependent on broad stock and bond market moves.
Outro: Here’s our Market take
Traditional portfolio diversification is being challenged as long-term bond yields rise and old safe havens prove less reliable. We think investors need a Plan B — using broader sources of return while staying pro-risk on solid earnings and the AI theme.
Closing frame: Read details: blackrock.com/weekly-commentary