BlackRock's research arm upgrades short-term Treasuries and cuts U.S. stocks to neutral

BlackRock's research arm, the BlackRock Investment Institute, on Monday, October 12, 2026, upgraded short-term U.S. Treasuries to overweight from neutral and long-term Treasuries to neutral from underweight, and cut U.S. stocks from overweight to neutral.

The long-term underweight opened in October 2020, when the institute said the 10-year Treasury yield was still below 0.9%. The institute has stayed mostly underweight long-term Treasuries since, aside from brief stretches at neutral.

The yield was 5.24% on Friday, October 9, the latest reading, with the market for Treasury bonds closed Monday for Columbus Day, a U.S. holiday. Stocks were open.

Jean Boivin, head of the BlackRock Investment Institute, Wei Li, global chief investment strategist, and Rick Rieder, chief investment officer of global fixed income, set the views as six- to 12-month tactical positioning against broad global asset classes. Overweight means a larger share than in that broad mix, neutral means the same share, and underweight means a smaller one.

In that model, closing the stock overweight shifts weight toward Treasuries. That is how the stock cut partly funds the Treasury upgrade. The note is a research view, not a report of trades in BlackRock's funds, and it says it is not advice on any fund or security.

Why the overweight stops at the front end

The institute said the 10-year yield is up 110 basis points this year. A basis point is a hundredth of a percentage point.

The rise, the institute said, has come mainly from higher real rates, yields after expected inflation is taken out, rather than from inflation expectations or term premium. Term premium is the extra yield investors require to hold a long bond.

Two forces are behind those higher real rates, the institute said. Competition for capital is pushing up the neutral rate, the level that neither speeds the economy nor slows it. Middle East tensions and higher oil prices have driven a sharp reversal in expectations for the Federal Reserve, toward more tightening.

Since January, the institute said, the market's 12-month pricing of Federal Reserve tightening has risen by 160 basis points. Tightening means higher policy rates. "We think that is overdone."

At current yields, the institute's analysis suggests a 75-basis-point cushion against further yield increases over 12 months before total returns turn negative. That, it said, supports adding Treasuries.

The overweight stops at the front end. Shorter Treasuries, the institute said, are where expectations for further rate increases could unwind, and they offer income and a greater buffer than longer Treasuries if yields rise further.

Higher yields now offer better compensation for holding long Treasuries than they did, the institute said, but it is stopping at neutral. "We still see room for yields to rise as competition for capital intensifies."

The short-term market in that overweight is the iShares 1-3 Year Treasury Bond ETF BSHY, which holds Treasuries with one to three years left to maturity. The long end, taken only to neutral, is the iShares 20+ Year Treasury Bond ETF BTLT, which holds Treasuries maturing in more than 20 years. The institute did not recommend either fund.

The stock cut is risk management

The institute called the stock cut a short-term risk-management move, to manage potential volatility around the buildout of artificial intelligence. That cut is the U.S. stock market in the State Street SPDR S&P 500 ETF ASPY. Inside the new neutral, the institute still favors AI and technology.

FactSet data in the note shows third-quarter earnings for S&P 500 companies are expected to grow nearly 30% from a year earlier. Set against that, the institute called the cut profit-taking against volatility.

In the note's bottom line, Boivin, Li and Rieder wrote:

"We are managing near-term risk, not changing our core convictions. Higher yields offer an opportunity to add Treasuries, funded partly by taking profits on U.S. equities. We remain constructive on AI and stand ready to add risk again as visibility improves and attractive entry points emerge."

Inflation data, then the Fed

The Bureau of Labor Statistics publishes the September consumer price index on Wednesday, October 14. The Federal Open Market Committee next meets October 27 and 28.

On September 16, 2026, the Committee raised its target range by 25 basis points, to 3.75% to 4%. Minutes of that September 15-16 meeting, released October 7, said most participants assessed that another increase in the target range "would likely be appropriate by year end," and that later decisions would depend on incoming data.