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<\/a><\/p>\nBy Davide Barbuscia<\/p>\n
CHICAGO (Reuters) – BlackRock has been buying U.S. Treasuries in anticipation of an economic slowdown and a protracted fight between the U.S. government and Congress around the debt limit, BlackRock Chief Investment Officer of Global Fixed Income Rick Rieder said on Wednesday.<\/p>\n
A U.S. debt default, though considered unlikely, would send financial markets into a tailspin as investors would lose confidence in the U.S. ability to pay its bonds, which serve as building blocks for the world’s financial system.<\/p>\n
Paradoxically, however, in previous debt ceiling crises investors have sought protection from the economic risks of a default by piling into U.S. long-term Treasuries.<\/p>\n
“If you go through a debt ceiling crisis, it’s a global crisis … And the flight to quality ends up being in U.S. Treasuries,” Rieder told Reuters in an interview. “If we default it will be a short-term default and so it makes sense to have some more interest rate exposure.”<\/p>\n
He said he had been adding 10-year Treasuries in recent weeks, with worries around the debt ceiling being a driver, as well as concerns around an economic slowdown and recent stress in the financial system.<\/p>\n
“The debt ceiling is certainly part of it,” he said, adding other recent steps were an overall reduction of risk in the portfolio, including in credit.<\/p>\n
Weaker-than-expected U.S. tax receipts have recently indicated that the deadline to raise the $31.4 trillion borrowing limit could be sooner than expected, sending shockwaves in the short-term part of the U.S. government bond market.<\/p>\n
The U.S. House of Representatives will vote on a Republican bill to raise the U.S. government’s $31.4 trillion debt ceiling and slash spending on Wednesday.<\/p>\n
The White House has called on Congress to raise the debt limit without conditions, as it did three times under Biden’s Republican predecessor, Donald Trump.<\/p>\n
“It’s so hard to foresee how far down the road this debt ceiling is going to take us,” Rieder said.<\/p>\n
\n(Reporting by Davide Barbuscia; Editing by Stephen Coates)<\/p>\n
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