After a “dizzying” first half of 2025, BlackRock Inc. says the third quarter of the year will be an opportune time to invest in fixed-income instruments in Europe and Asia, and to prioritize income over duration. The asset manager also encourages a dynamic, active investment approach to adapt to evolving market conditions.
BlackRock’s first quarterly fixed-income report noted that global investors started to diversify away from U.S. assets in the second quarter after the U.S. dollar weakened alongside a major “risk-off event” and there was a “clear divergence” between U.S. and European markets, which saw German bunds demonstrate their risk-hedging features and outshine U.S. Treasuries.
Looking ahead to Q3, the co-heads of European fundamental fixed-income investments with BlackRock projected a “gradual” reallocation of capital from U.S. markets — with Europe and Asia standing to benefit.
“Given the magnitude of global demand for U.S. assets, we don’t think there is a single market that could absorb even a modest reallocation out of the U.S. To illustrate this point, consider that U.S. investment-grade BBB assets are almost double the size of Germany’s entire sovereign debt market,” Simon Blundell and James Turner wrote in the report.
“That said, we do see a number of key beneficiaries across the globe, including Europe and parts of Asia, with the former offering stability and liquidity, and the latter better yields and growth.”
Blundell and Turner noted that the typically risk-averse investors in the U.S. fixed-income market are more likely to put their investment dollars in European fixed income than Asian or emerging fixed-income markets “as stability is a key consideration.”
They said they anticipate “plenty of opportunities” in European fixed income. They also suggested that liquidity is poised to improve in European fixed income, thanks to the increased issuance expected from governments in the region.
Given ongoing headwinds such as heightened volatility, uncertain trade policies, geopolitical tensions and a U.S. “fiscal conundrum,” Blundell and Turner said investors should take an active investment approach.
Rick Rieder, BlackRock’s chief investment officer of global fixed income, suggested prioritizing income over duration. At the same time, he said, “In contrast to the U.S., lending opportunities in Europe and parts of Asia offer compelling ways to gain longer duration exposure.”
“In a market environment marked by heightened uncertainty and unreliable correlations, the case for a larger allocation to stable, income-generating investments has never been stronger,” Rieder added.
The report also features commentary from Tom Parker, chief investment officer, and Jeffrey Rosenberg, senior portfolio manager, with BlackRock’s systematic fixed-income team. The two said a “new conundrum” is underway, in which long-term rates may not follow U.S. Federal Reserve policy as strongly as in the past, if at all.
As a result, Parker and Rosenberg said they see “more value for hedging efficacy in shorter maturities (when using leverage to equate the percentage impact on a portfolio) and global opportunities vs. traditional long-end U.S. fixed income.”