BlackRock’s recent Spring Outlook shows that while returns from bonds have remained strong recently, investors may also want to focus on bonds tied to the real economy. Stocks rose and bond yields were flat on Friday as the new month and start of a new quarter began, but the market has been rocked by volatility this year. War with Iran, concerns about inflation and concerns about disruption caused by artificial intelligence are weighing on investors. The 10-year US Treasury bond was below 4% just before the Middle East conflict began, but is now closer to 4.35%. “We are seeing an increase in the value of ‘HALO’ assets (heavy assets, low obsolescence), which favors tangible assets that may be less susceptible to AI disruption,” said Gargi Chaudhry, chief investment and portfolio strategist for the Americas at BlackRock. For example, concerns around energy security have increased over the past two months. Already in the spotlight because of its AI needs, rising oil prices have heightened those concerns, Chaudhuri told CNBC in a follow-up interview. West Texas Intermediate crude oil traded near $102 per barrel Friday. But HALO is just one component to consider, she noted. “Just because HALO exists doesn’t mean you should own it,” Chaudhry said. “What we’re saying is that we’ve included elements that are important to the real economy at the moment and the income on the front end of the curve associated with them. This can make them very good and attractive income opportunities in a portfolio.” She prefers to keep time horizons on the front end or berry of the curve, ranging from zero to five or six years for now. Opportunities These opportunities lie in the securitization sector, such as commercial mortgage-backed securities, residential MBS, and some asset-backed securities, Chaudhuri advised. MBS products are backed by a pool of loans against residential or commercial real estate, such as a single asset single borrower. As the name suggests, this is a single loan against a single property or multiple properties owned by a single borrower. MBB YTD Mountain iShares MBS ETF Year-to-date residential MBS can be federally backed agency mortgages or non-agency mortgages, he said. “You have the equity associated with the mortgage behind the payments you are receiving,” she said. “We’re getting back into the real economy in a big way.” The iShares MBS ETF, which tracks the investment-grade MBS market, currently has a 30-day SEC yield of 4.14% and an expense ratio of 0.04%. The same is true for asset-backed securities such as car loans. “What do you need fixed income income for in this environment? You want to bring some income into your portfolio when you know volatility has been quite a concern lately,” she said.
