Financial giant BlackRock remains underweight long-term US Treasuries amid the airstrikes in Iran, which are causing an energy-induced shock to the supply chain.
In a new commentaryAnalysts at the BlackRock Investment Institute say the pricing of oil futures suggests “disruptions could last weeks, not months.”
“This episode increases inflation risk in a world governed by supply-side factors. That is why long-term government bond yields have risen, defying their role as a haven. There is a risk of a stagflationary shock, but it is not obvious, as the market price indicates. We remain underweight in long-term government bonds and prefer US equities.”
The analysts note that international stocks were outperforming U.S. stocks until the U.S. and Israeli airstrikes. That changed after the conflict broke out, with stocks from regions dependent on energy imports suffering.
However, they argue that economic and political pressure could help contain the conflict in Iran.
“And the disruptions could ease in the meantime if U.S. naval escorts and ship insurance prove effective in preventing a prolonged closure of the world’s energy aorta – the Strait of Hormuz. The net result of all this: a short-term supply contraction with disparate regional impacts.”
BlackRock also remains overweight Japanese equities due to “strong nominal growth and corporate governance reforms.”
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