BlackRock fund manager says investors can boost income by going global with government bonds
There’s an area of the market that many investors are overlooking: foreign government bonds, according to BlackRock’s Tom Becker. While they may venture into global equities, most investors stay focused within the United States when it comes to fixed income, he said. As portfolio manager on the iShares Global Government Bond USD Hedged Active ETF (GGOV), Becker is making the case for spreading allocations out to governments around the globe. The fund has a 2.56% 30-day SEC yield and a 0.39% net expense ratio. That diversification is important, he said. A U.S.-only portfolio is very correlated with the nation’s business cycle, inflation and U.S. Treasury issuance, Becker noted. Plus, any issues or shocks in one country can be offset by another country that is doing well, he added. For instance, in 2022 was the worst year for U.S. bonds as the Federal Reserve raised interest rates to combat inflation, he said. “That more diversified portfolio is going to give you more ballast and more diversification across different interest rate cycles. You’re compounding the higher yield with lower volatility,” Becker said. GGOV mountain 2025-06-25 iShares Global Government Bond USD Hedged Active ETF since its June 25 launch. While the U.S. government shutdown does not have any direct impact on the fund’s strategy, it shows why investors may want to be diversified, he said. Becker said the halt was “a symptom of rising uncertainty around the funding/spending/issuance path for the U.S. Treasury in the coming years, which over the medium term increases the portfolio diversification benefits of broadening fixed-income allocations across global sovereigns.” The exchange-traded fund, which launched in June, still has its largest holdings in U.S. Treasurys, which make up 33% of the fund , as of Oct. 10. Getting higher yield, lower volatility To help get a boost in yield and dampen volatility, GGOV is hedged to remove currency risk, Becker said. “If we didn’t remove the currency risk, we would move with the dollar/yen or the dollar/euro exchange rate,” Becker explained. “We hedge that back and what that then gives us is a structural exposure to a diversified set of issuers without currency risk and with a yield uplift — and the yield uplift comes from the currency hedge most of the time.” For instance, if he is buying a German Bund that yields 2.5%, he’ll sell U.S. dollars to buy euros and then buy the bond, he said. “I hedge that long Euro, short U.S. dollar back. So I basically sell euros and buy dollars back at the front end of the curve,” he added. “I basically undo the currency exposure.” When doing that, Becker gets the rate differential between the European Central Bank and the Fed. If the ECB is at 2% and the Fed is at 4%, he’ll get a 2% yield uplift, he said. “Now I have exposure to a 2.5% yielding 10-year bond, with an exposure to a rolling set of 2% interest-rate differentials at the front end,” he explained. “So, in aggregate, that portfolio is yielding 4.5%, which is pretty good, and it has exposure to low inflation. It has exposure to a more dovish central bank.” Where Becker’s investing When looking for opportunities, Becker prefers central banks that are cutting rates. He also wants inflation that is low and moderating so he can get an attractive real yield. Inflation in the U.S. has still not reached the Federal Reserve’s target of 2%. A part of the stickiness is due to fiscal policy, he noted. “When you run big budget deficits, you just tend to get higher inflation,” Becker explained. “In this current environment, we’re really looking for countries that are a little more austere.” Plus, future Fed rate decreases are already priced into the Treasury curve. However, the market is misreading the reaction function of the central bank by expecting cuts even if inflation is elevated and moves higher, he said. “The fact that you only had one dissent at this latest meeting, to us, speaks to the fact that they’re going to try to protect the inflation-fighting credibility [of the] institution,” Becker said. “If the U.S. economy is as strong as we think it is … we think inflation is going to make it very, very hard for them to deliver on those cuts.” In particular, he likes European bonds because he believes many companies will find it difficult to maintain pricing power amid U.S. tariffs. The countries’ fiscal policies also aren’t going to be as large as those in the U.S., he said. He’s been buying German Bunds, and recently grabbed some French government bonds. While there has been a huge risk premium in France because of its deepening political crisis , at the end of the day France has good credit, Becker said. “We think inflation-adjusted yields on French bonds are pretty attractive after that sell off,” he said. Within emerging markets, Becker likes government bonds from Mexico and China. Inflation is low and falling in Mexico, while it is negative in China, he said. (Learn the best 2026 strategies from inside the NYSE with Josh Brown and others at CNBC PRO Live. Tickets and info here .)
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