BlackRock bets on corporate bonds over ‘volatile’ sovereigns as inflation ebbs

By Harry Robertson

LONDON, Feb 24 (Reuters) - Investment giant BlackRock BLK.N favours corporate debt due to the higher yields on offer as inflation subsides, it said on Tuesday, and warned that government bond markets are likely to be more volatile as countries spend big on defence and infrastructure.

BlackRock, which has $14 trillion under management, said in an outlook report that falling inflation means the high yields available on corporate bonds are becoming more attractive in real terms.

This outweighed concerns that the additional returns over government bonds - so-called credit spreads - are around multi-decade lows, it said.

“The certainty that you used to get from government bonds is no longer quite as certain,” James Turner, head of global fixed income EMEA at BlackRock, said in an interview with Reuters on Monday ahead of the report's release.

“At the same time as corporate fundamentals have generally been improving, you’ve generally seen government deficits on an increasing trend.” He added: “Government bonds have actually been more volatile and less certain.”

BlackRock said companies had benefited from continued economic growth in the U.S. and Europe and had been able to cut their debt levels. Meanwhile, it said, sovereign bond markets face challenges as governments continue to spend heavily, particularly on defence.

It cited France as facing pressures from high public debt and political uncertainty, and Britain as struggling with an uncertain growth outlook.

British long-dated bond yields GB30YT=RR in September hit their highest since 1998, while France's rose to a 17-year high in December FR30YT=RR. Yields move inversely to prices.

"There's still a place for having government bonds in there," Turner said. "But we would prefer to overweight the credit part."

Turner said he thought the latest uncertainty around U.S. President Donald Trump's tariffs was unlikely to materially change BlackRock's thesis, and cited how well economies and companies coped with trade policy uncertainty in 2025.

“It’s about looking through that noise,” Turner said, adding investors should pay close attention to individual companies' resilience as artificial intelligence threatens to disrupt some areas of the economy.