Staying nimble as energy policy pivots
Market take
Weekly video_20250527
Hugo Liebaert
Sustainable Research and Analytics, BlackRock Investment Institute
Opening frame: What’s driving markets? Market take
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Globally, policymakers are balancing energy security, reliability and affordability with environmental goals. That task is getting trickier as mega forces drive power demand.
Title slide: Staying nimble as energy policy pivots
1: Has clean energy hit its lows?
Thanks to cheap valuations and the promise of AI-driven growth, US clean energy stocks have outpaced traditional energy since April after struggling for years. Yet we’re skeptical of a rally as the US legislative debate over domestic energy policy continues.
2: Shifting sentiment on nuclear
The latest revisions to the US Inflation Reduction Act kept tax credits for nuclear project developers. That’s a win for big US tech companies that champion nuclear as a power source for AI.
And last week, Germany ended its aversion to the EU adopting nuclear power. Most EU nations have turned supportive in recent months. That may lift Europe’s competitiveness that’s been dampened by higher energy prices.
3: Policy shifts in traditional energy
Historically, OPEC+, a group of petroleum producing countries, has sought to keep oil prices up to fund government initiatives. Yet even as prices have fallen, OPEC+ has continued to increase supply.
If that shift sticks, it has a lot of consequences. Lower oil prices make clean tech like electric vehicles seem less attractive and could further slow adoption. Lower prices also mean consumers pay less at the pump. That’s a political win, but if prices get too low, it jeopardizes US oil.
Outro: Here’s our Market take
Growing power demand has policymakers rethinking how to balance energy sustainability, affordability and security. We see opportunities in nuclear, US natural gas and EU renewables, especially solar and batteries.
Closing frame: Read details: blackrock.com/weekly-commentary
Tracking energy policy pivots
With global energy demand surging, many governments are recalibrating their energy policies and making waves in markets – but changes vary by region.
Market backdrop
US stocks fell last week over higher bond yields and threats of new US tariffs. We focus on actions over words as economic constraints spur policy rollbacks.
Week ahead
US PCE inflation this week is unlikely to reflect the full tariff impact, similar to the April CPI. But we see tariffs and a tight labor market keeping inflation sticky.
Long-term US bond yields jumped from April lows as policy developments, like the budget bill, draw focus to US debt sustainability. This has revived questions about the diversification role of Treasuries. We have long pointed to the low, even negative, risk premium investors accepted for Treasuries – and expected it to change. That’s now playing out, dragging up developed market government bond yields. We stay underweight long-term bonds but prefer the euro area to the US.
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Following the US
10-year US yields vs. ex-US developed market yields, 1990-2025
Past performance is not a reliable indicator of current or future results. Source: BlackRock Investment Institute, with data from LSEG Datastream, May 2025. Notes: The chart shows US 10-year Treasury yields and an average of 10-year German, Japanese and UK government bond yields.
Ultra-low interest rates in the pandemic lulled investors into a sense of safety about ballooning government debt. They accepted lower term premium, or compensation for the risk of holding that debt over a long time. That pulled down global yields as well. See the chart. But long-term yields are up sharply since April as investors demand more term premium. We have long expected that. In 2021, we flagged that elevated government debt created a fragile equilibrium, with bonds vulnerable to changing investor perception of their risk. And we pointed to persistent inflation pressure from post-pandemic supply disruptions. Higher inflation, and thus higher policy rates along with any rise in term premium, boost debt servicing costs. We’re still underweight long-term developed market (DM) government bonds, but have a relative preference for the euro area and Japan over the US.
Our strongest conviction has been staying underweight long-term US Treasuries. We maintain that view as concerns about the deficit mount. In March, we estimated the US deficit-to-GDP ratio would land in the 5% to 7% range, based on external forecasts of the impact of proposed trade, fiscal and immigration policy. Since then, Moody’s cut the US top-notch credit rating and Congress is considering a budget bill that we think could push deficits to the upper end of that range – or beyond. We’re watching to see if these changes impact foreign investors and drive term premium even higher.
Global yields rising
In Japan, 30-year bond yields hit a record high in May, confirming our long-standing underweight. Japan’s central bank – historically the largest government bond buyer as part of policy easing to lift the economy out of deflation – has trimmed purchases as part of its policy normalisation. That has put pressure on long-term yields, and a recent long-term bond auction drew the weakest demand in a decade. This in turn prompted Japan’s Ministry of Finance to consider trimming long-term bond sales. If yields rise more, the government’s cost to service its debt – now twice the size of its economy – will also rise.
The UK is already rolling back long-term bond issuance amid lower demand and higher yields. Meanwhile, euro area yields have been rising as governments up defense and infrastructure investment. Yet we prefer euro area government bonds to the US They’re increasingly less correlated to fluctuations in US Treasuries, and a sluggish economy gives the European Central Bank more room to cut rates in the near term. For income, we prefer shorter-term government bonds and European credit – both investment grade and high-yield – over the US on cheaper valuations.
On equities, we flipped back to being pro-risk in April once it became clear that hard economic rules limit how far US policy can move from the status quo, such as how foreign investors fund US debt. Our US equity overweight relies on that rule, just as another rule – supply chains can’t rewire overnight without serious disruption – proved binding on trade policy. This overweight is grounded in the artificial intelligence mega force – reinforced by Nvidia’s earnings beat last week.
Our bottom line
US Treasury yields have jumped since April. That’s a global story of normalising term premium. We stay underweight long-term DM government bonds, preferring shorter-term bonds and euro area credit.
Market backdrop
US stocks gained nearly 2% last week, led by tech stocks after Nvidia beat earnings expectations. The S&P 500 was up nearly 22% from its April lows. Stocks got a boost during the week after a US trade court blocked most of the new US tariffs. But a federal appeals court later granted a stay on the decision – allowing the tariffs to stay in place until a final decision is reached. US 10-year Treasury yields edged down to 4.40% but are still 50 basis points above their April lows.
We’re watching this week’s US payroll data for May after job gains topped expectations and wage growth cooled in April. We’re tracking the impact of trade disruptions on hiring and how slowing labor force growth affects wage pressures. We see the European Central Bank cutting policy rates modestly but look for signs that it might cut more deeply if trade disruptions weigh on euro area growth.
Week ahead
Past performance is not a reliable indicator of current or future results. Indexes are unmanaged and do not account for fees. It is not possible to invest directly in an index. Sources: BlackRock Investment Institute, with data from LSEG Datastream as of May 22, 2025. Notes: The two ends of the bars show the lowest and highest returns at any point year to date, and the dots represent current year-to-date returns. Emerging market (EM), high yield and global corporate investment grade (IG) returns are denominated in US dollars, and the rest in local currencies. Indexes or prices used are: spot Brent crude, ICE US Dollar Index (DXY), spot gold, MSCI Emerging Markets Index, MSCI Europe Index, LSEG Datastream 10-year benchmark government bond index (US, Germany and Italy), Bank of America Merrill Lynch Global High Yield Index, J.P. Morgan EMBI Index, Bank of America Merrill Lynch Global Broad Corporate Index and MSCI USA Index.
May 27
US consumer confidence
May 30
US PCE
May 31
China manufacturing PMI
Read our past weekly commentaries here.
Meet the authors
Jean Boivin
Head – BlackRock Investment Institute
Wei Li
Global Chief Investment Strategist – BlackRock Investment Institute
Christopher Kaminker
Head of Sustainable Research and Analytics – BlackRock Investment Institute
Chris Weber
Head of Climate Research – BlackRock Investment Institute
Hugo Liebaert
Sustainable Research and Analytics – BlackRock Investment Institute
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