By Davide Barbuscia
CHICAGO (Reuters) – BlackRock has been buying US Treasuries in anticipation of an economic slowdown and a protracted battle between the US government and Congress over the debt limit, Rick Rieder, BlackRock’s chief investment officer for global fixed income, said on Wednesday.
A US debt default, while considered unlikely, would send financial markets into a tailspin as investors would lose confidence in the US’s ability to pay off its bonds, which serve as the building blocks of the world’s financial system.
Paradoxically, however, in previous debt ceiling crises, investors have attempted to protect themselves from the economic risks of a default by investing in long-dated US Treasuries.
“If you go through a debt ceiling crisis, it’s a global crisis … and the flight to quality ends up in US Treasuries,” Rieder said in an interview with Reuters. “If we default, it will be a short-term default and so it makes sense to have more interest rate risk.”
He said he had added 10-year government bonds in recent weeks, with worries about the debt ceiling being a driver, as well as worries about an economic slowdown and recent stress in the financial system.
“The debt ceiling is certainly part of that,” he said, adding that other recent moves are a general reduction in risk in the portfolio, including loans.
Weaker-than-expected US tax receipts have recently indicated that the deadline to raise the US$31.4 trillion borrowing limit could be earlier than expected, sending shockwaves in the short-term part of the US Treasury market.
The US House of Representatives on Wednesday will vote on a Republican bill that would raise the US government’s $31.4 trillion debt ceiling and cut spending.
The White House has urged Congress to unconditionally raise the debt ceiling, as it has done three times under Biden’s Republican predecessor, Donald Trump.
“It’s so hard to predict how far this debt ceiling will take us,” Rieder said.
(Reporting by Davide Barbuscia; Editing by Stephen Coates)
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