BlackRock Inc. is capitalizing on the recent strong performance of European credit markets by selling some high-yield bonds there and increasing holdings in the US in its global portfolios.

According to James Turner, BlackRock's co-head of European fundamental fixed income, the asset manager is rebalancing its global funds to have more even exposure between Europe and the US, as opposed to the previous favoritism toward Europe. This shift comes as the yield premium on US junk bonds compared to Treasuries has widened significantly due to concerns about the impact of President Trump's tariffs on US economic growth.

While European junk bond spreads have also widened, they have been less affected due to optimism surrounding government spending initiatives in Europe, particularly in defense and infrastructure projects led by Germany.

Turner mentioned that with European spreads performing strongly compared to the US, the previous overweight position in Europe no longer makes sense in the global funds. The rebalancing decision is also influenced by the expectation that the European Central Bank may not aggressively lower rates as previously anticipated.

A higher interest rate environment is viewed as favorable for corporate debt by Turner, as he believes it provides an opportunity to invest in high-quality corporate debt with attractive income potential.

In a recent report, Turner and Simon Blundell, BlackRock's other co-head of European fundamental fixed income, expressed confidence in European fixed-income assets. They specifically pointed out the appealing risk-adjusted returns in certain segments of the European securitized market, such as collateralized loan obligations.

BlackRock sees a significant opportunity in the substantial cash reserves that have accumulated in both the US and EU. This includes approximately $7 trillion in US money market assets and $1.3 trillion in EU money market assets. The asset manager suggests that investors can transition from cash to fixed income without needing to extend duration or accept lower credit quality to achieve rewards, unlike in the past easy-money environment.