After the U.S. debt ceiling agreement was reached, the legal person said that the focus of the market will continue to focus on inflation. Even if the Fed keeps interest rates unchanged in June, the high interest rates will continue for a period of time and market volatility will increase. Therefore, high-quality stocks and bonds , income-generating assets and short-term government bonds are still the first choice for investment.
The US debt ceiling reached an agreement to eliminate the uncertainty of the market in the near future. BlackRock believes that the focus of the market has returned to the future development of the overall economy. Given the tight labor market and the expectation that interest rates will remain elevated for an extended period of time, there is a continued preference for quality portfolios, with a current preference for income-generating assets.
In addition, the future may see the market’s attention shift to the huge debt burden that the United States is facing, and investors holding long-dated government bonds will demand more risk compensation.
BlackRock also predicts that the U.S. government may issue a large amount of Treasury bills as it tries to make up for the loss of funds that were lost when it hit the debt ceiling earlier this year. Treasury issuance could surge to $1 trillion in the coming months, well above normal issuance outside of the 2008 financial crisis and pandemic. This could increase volatility in fixed income, especially bonds with very short maturities.
Overall, the US debt ceiling reached an agreement to eliminate the uncertainty of the recent market, it is expected that the market will turn to focus on the overall economic situation. Interest rates will remain at a high level for a long time, so they are optimistic about high-quality stocks and bonds and prefer income-generating assets. They are optimistic about short-term government bonds, local currency bonds in emerging markets, and inflation-linked bonds.
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