BlackRock Says Bonds Have Lost Their Traditional Safety Role — Investors Must Recalibrate

BlackRock’s research team argues that fixed income’s historical role as a portfolio stabilizer is being reshaped by two durable forces: materially larger sovereign supply and a persistent higher-rate environment. Together these dynamics make long-duration government debt more vulnerable to abrupt repricing when policy signals shift or fiscal pressures intensify. The firm points to episodes of recent volatility that combined rate moves, trade-policy noise and country-specific fiscal events to produce outsized technical strain in some sovereign markets. In response, BlackRock has been trimming exposure to long-duration Japanese government securities since 2023 and reduced allocations to long-maturity U.S. Treasuries beginning in late 2025, a tactical repositioning that reflects concern about heightened duration and liquidity risk. The firm highlights that market liquidity and auction dynamics now play a larger role: weak demand at long-dated supply points can quickly amplify yield moves and transmit stress across markets. Large, relatively passive holders of domestic sovereign bonds — such as major pension funds — are a complicating factor; sharp repricing can force those investors to reconsider duration and foreign-allocation choices, which in turn could magnify local and global demand shocks. That interplay between big, institutional holders and thinner secondary markets illustrates how fiscal signaling, central bank actions and portfolio rebalancing can interact to produce nonlinear market outcomes. For portfolio construction, BlackRock advises treating bonds as one of several risk-damping tools rather than the automatic backbone: shorter durations, active credit selection, and allocations to assets with low correlation to equities should be prioritized. The firm also stresses the importance of active duration management, contingency planning for simultaneous equity-bond stress, and closer attention to funding and liquidity risks. From a policy perspective, the analysis implies that central-bank decisions and fiscal strategies will have larger knock-on effects for sovereign yield curves than in prior low-rate regimes. Ultimately, BlackRock frames these changes as a durable regime shift that raises the bar for insurers of risk, pushing investors toward more nuanced, actively managed defenses to preserve capital in an environment less forgiving of policy missteps and macro surprises.