By Davide Barbuscia
CHICAGO (Reuters) – BlackRock has been buying U.S. Treasuries in anticipation of an economic slowdown and a protracted fight between the U.S. government and Congress around the debt limit, BlackRock Chief Investment Officer of Global Fixed Income Rick Rieder said on Wednesday.
A U.S. debt default, though considered unlikely, would send financial markets into a tailspin as investors would lose confidence in the U.S. ability to pay its bonds, which serve as building blocks for the world’s financial system.
Paradoxically, however, in previous debt ceiling crises investors have sought protection from the economic risks of a default by piling into U.S. long-term Treasuries.
“If you go through a debt ceiling crisis, it’s a global crisis … And the flight to quality ends up being in U.S. Treasuries,” Rieder told Reuters in an interview. “If we default it will be a short-term default and so it makes sense to have some more interest rate exposure.”
He said he had been adding 10-year Treasuries in recent weeks, with worries around the debt ceiling being a driver, as well as concerns around an economic slowdown and recent stress in the financial system.
“The debt ceiling is certainly part of it,” he said, adding other recent steps were an overall reduction of risk in the portfolio, including in credit.
Weaker-than-expected U.S. tax receipts have recently indicated that the deadline to raise the $31.4 trillion borrowing limit could be sooner than expected, sending shockwaves in the short-term part of the U.S. government bond market.
The U.S. House of Representatives will vote on a Republican bill to raise the U.S. government’s $31.4 trillion debt ceiling and slash spending on Wednesday.
The White House has called on Congress to raise the debt limit without conditions, as it did three times under Biden’s Republican predecessor, Donald Trump.
“It’s so hard to foresee how far down the road this debt ceiling is going to take us,” Rieder said.
(Reporting by Davide Barbuscia; Editing by Stephen Coates)
