BlackRock: Central bank divergence impacting duration

A divergence in central policy is changing the way fixed income duration should be played, according to BlackRock bond specialists.

BlackRock chief investment strategist for international fixed income Stephen Cohen is aware that the UK recovery might influence the bank rate sooner than in other markets.

As a result this has affected his duration view. Cohen says: “Last year it was not too expensive to be short in the UK. It is now expensive to just there and be short.

“The UK is one area we are more cautious on and that is because we are the most likely country to raise rates and are facing the most pressure due to good economic data.

“Here we have been running negative duration. That is why we see the five to 10-year gilt market as the most vulnerable.”

On the other hand, BlackRock is adopting a longer duration with US fixed income and especially on the back end of the yield curve.

BlackRock head of fixed income asset allocation Benjamin Brodsky says: “There is less danger being long in the US than there was before, particularly in the back end.

“The Federal Reserve has moved from action to words, with verbal intervention such as forward guidance. Therefore influence on the long end of the yield curve has diminished and now there is a very rosy growth scenario here.”