(Bloomberg) -- An ever-popular call on Wall Street to pare sovereign debt holdings in the age of inflation is getting short shrift at BlackRock Inc.
The firm has been boosting exposure to government bonds because they’re “actually working” to counter market turmoil, according to Rupert Harrison, portfolio manager for multi-asset strategies.
“We’ve seen duration and government bonds coming back into fashion as a hedge -- they’ve actually been working over the last few weeks,” Harrison said in an interview with Bloomberg TV. “That’s something we’ve been adding back into portfolios over the last few months.”
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The endorsement comes amid mounting doubts that bonds will cushion stock downturns amid elevated inflation and monetary tightening. At various points of the pandemic, stocks and bonds have also suffered simultaneous bouts of selling.
Harrison, for one, is counting on the asset class amid the spread of the omicron variant of Covid-19. He’s backed up by recent research that shows that over decades, bonds are far less prone to swings than stocks and help temper overall portfolio volatility.
The risk that disruption from the new strain slows growth also favors bonds versus assets tied to the recovery.
“The omicron developments still justify a holding pattern for markets in terms of risk sentiment,” he said. “It’s a setback, it’s certainly not setting us back to square one given all the progress on vaccines, anti-virals, and the fact that many governments are not going to back to lockdowns. At the same time we have to expect some kind of serious vaccine escape from this variant. There’s uncertainty around that. And that is going to delay the recovery over the winter.”
As demand for hedges endures, Harrison says the U.S. currency rally has legs.
“The dollar is an important part of hedging multi-asset portfolios,” he said. “Interestingly we haven’t seen that on the extreme risk-off days where you’ve seen the dollar weakening. But generally there’s a trend toward a stronger dollar and over a longer horizon it will act as a decent hedge.”
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