BlackRock’s Suggested 2023 Buys: Investment Grade Corporates and Just 2 Other Bond Types

Expect a recession next year, and also inflation that’s not quite tamed (higher than the 2% Federal Reserve target), says BlackRock. Fixed income is a typical refuge for investors in an economic downturn, but the world’s largest asset manager expects problems with a lot of bonds, given the inflation situation—long-term Treasuries, for instance, will see higher yields and thus lower prices amid still-pesky inflation.

So what does that leave? In BlackRock’s view, not equities, whose earnings will suffer in the coming recession. A lot of bonds are best skipped, such as British government paper, aka gilts, due to the U.K.’s tattered credibility amid the government’s recent screw-ups, the firm says.

Three types of bonds stand out as overweights, BlackRock finds, in its 2023 global outlook: global investment grade bonds, U.S. agency mortgage-backed securities and inflation-protected bonds. The current environment “calls for taking more granular views by focusing on sectors, regions and sub-asset classes, rather than on broad exposures,” the study declared.

“The macro damage we expect for next year is yet to be fully reflected in market pricing,” said Wei Li, global chief investment strategist at the BlackRock Investment Institute, its in-house think tank.

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BlackRock does not expect the Federal Reserve to at some point reverse its tightening campaign, as many investors hope. Not gonna happen, the study predicts. “Policy rates may stay higher for longer than the market is expecting,” the firm’s report said. “As a result, we remain underweight long-term government bonds in tactical and strategic portfolios.”

But IG credit looks good to BlackRock. One big reason is that companies have stockpiled a lot of cash and are not over-leveraged. IG debt “can hold up in a recession, with companies having fortified their balance sheets by refinancing debt at lower yields,” the report stated.

Things also look solid for agency-backed MBS, and in the U.S., that chiefly means Fannie Mae and Freddie Mac bonds. As the 2008-09 financial crisis showed, Washington is there to rescue them if the worst occurs. These days, of course, the agency securities are on much firmer ground, with better underwriting standards providing a strong base of mortgages. Plus, the report noted, “soaring U.S. mortgage rates have boosted potential income.” No kidding: 30-year fixed home loan rates now average 6.6%, twice its level from 12 months ago.

While BlackRock did not give an inflation forecast, it insisted that price levels will remain elevated compared with the pre-pandemic situation, when inflation was routinely around 1%. That underscores the need for inflation-linked securities, it contended.

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Tags: agency mortgage-backed securities, BlackRock, Bonds, Earnings, Equities, Federal Reserve, Gilts, inflation-linked bonds, Interest Rates, investment grade bonds

The pension fund will pay $2.4 billion for 25% of SSEN Transmission, continuing the plan’s allocation to infrastructure, which has increased 60% since 2017.

The $242.5 billion Ontario Teachers’ Pension Plan has taken a 25% stake in SSEN Transmission, a division of SSE PLC, a multinational energy company headquartered in Perth, Scotland.

The pension fund reported paying £1.47 billion ($2.4 billion) for the share of SSEN Transmission. The placement is the pension fund’s largest power-distribution and utility investment.

SSEN Transmission, the trading name for Scottish Hydro Electric Transmission, delivers hydroelectric power from northern Scotland to the rest of Great Britain. The company’s network consists of underground and subsea cables, overhead lines, and substations. The division is already a mass exporter of renewable energy; around two-thirds of power generated in the network’s area gets exported to demand centers further south in Britain.

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The SSEN transaction is the latest in a series of investments that OTPP has made in power transmission and distribution.

In 2021, the pension plan bought a 40% share of Finnish power distributor Caruna, which is in the process of burying most of its power lines in order to “weatherproof” its grid. The same year, the fund bought power transmission network Evoltz, a Brazilian operator, which owns more than 3,500 kilometers of power lines spanning 10 Brazilian states.

The investments are a part of the Ontario Teachers’ Infrastructure & Natural Resources group, which invests in energy infrastructure worldwide to accelerate the transition away from fossil fuels.

In May, OTPP agreed to invest up to $1 billion into a new offshore wind farm business launched by Macquarie Group Limited, of Australia, which aims to develop 14 fixed-bottom and floating wind farms in South Korea, Taiwan, Japan, Ireland and Great Britain.

OTPP in 2021 had acquired Scotia Gas Networks Limited, a British gas distribution company that manages natural and green gas distribution networks in Scotland and England, from SSE PLC.

“SSEN Transmission is one of Europe’s fastest growing transmission networks. Its network stretches across some of the most challenging terrain in Scotland–from the North Sea and across the Highlands–to deliver safe, reliable, renewable energy to demand centers across the UK,” said Charles Thomazi, OTPP senior managing director and head of EMEA infrastructure and natural resources at, in a press release. “We’re delighted to partner again with SSE and are committed to supporting the growth of its network and the vital role it plays in the UK’s green energy revolution.”

The fund’s total infrastructure assets under management have grown by more than 60% since 2017, reaching $30.6 billion at the end of June 2022.