Soaring Treasury yields and richer returns on inflation protected bonds are pulling investor attention away from parts of the stock market and toward government debt. That shift in retirement flows and institutional asset allocation can pressure some stocks that rely heavily on equity demand, while others tied more directly to long term Treasuries may see stronger interest. This article walks through three stocks that are closely linked to this story, with one that could be positioned on the right side of these yield moves and two that may face tougher conditions if the current bond appeal persists.

BlackRock Income Trust (BKT)

Overview: BlackRock Income Trust is a closed end fixed income fund that invests mainly in high quality US bonds, including Treasuries, agency mortgage backed securities and other assets that are issued or guaranteed by the US government or rated AAA/Aaa. It aims to turn this portfolio into regular income for shareholders.

Operations: BlackRock Income Trust generates about US$12.2 million in revenue from closed end fund activities, all from the United States.

Market Cap: US$331.0 million

BlackRock Income Trust sits at the intersection of rising Treasury yields and shifting retirement flows, and that is not all positive. Higher yields on long term Treasuries and TIPS give income focused investors a more direct way to seek government backed returns, which can draw attention away from a leveraged income fund with a 10.4% dividend that is not covered by earnings or free cash flow. The fund also relies entirely on external borrowings for funding, which adds refinancing and interest rate risk if credit markets remain tight. A 6.7% ROE and a board with no independent directors also raise questions about how shareholder friendly decisions will be if conditions become more challenging.

BlackRock Income Trust’s uncovered 10.4% dividend, full reliance on borrowings and modest 6.7% ROE could be masking pressure points as yields stay high. Get the full picture in the 2 key rewards and 2 important warning signs (2 are major!)

Prologis (PLD)

Overview: Prologis is a large real estate investment trust that owns, develops and manages logistics and industrial properties around the world, including warehouses and facilities that support e-commerce, supply chains and data centers.

Operations: Prologis generates most of its revenue from U.S. real estate operations at about US$8.0b, with additional real estate income from Europe and other regions, and several hundred million dollars from strategic capital management and unconsolidated ventures across the U.S., Europe, Asia and the Americas.

Market Cap: US$139.2b

Investors are drawn to Prologis for its global logistics footprint, record leasing activity and reliable dividend. However, soaring Treasury yields over 5% are now giving income seekers a simpler and lower risk alternative to REITs. Prologis also carries meaningful debt that depends on external funding, which becomes more expensive as bond yields climb, while the stock trades on a rich earnings multiple and analysts expect earnings to edge down over the next few years. The proposed US$18.7b SEGRO deal and rapid push into data centers and energy projects add complexity and execution risk at a time when higher yields can pressure property values and funding costs. The market reaction so far only tells part of the story.

Prologis’ rich earnings multiple, rising funding costs and the complex SEGRO deal raise the question of what current pricing might be glossing over. The 2 key rewards and 3 important warning signs (2 are major!) could highlight where expectations and risk are starting to decouple.

iShares 20+ Year U.S. Treasury Bond Index ETF (TSX:XTLT.U)

Overview: iShares 20+ Year U.S. Treasury Bond Index ETF gives investors simple exposure to a portfolio of U.S. Treasury bonds that each have more than 20 years left to maturity. The ETF aims to mirror the ICE U.S. Treasury 20+ Year Bond Index, packaging very long dated U.S. government debt into a single, tradeable Canadian listed fund.

Market Cap: US$2.6 million

With long term U.S. Treasury yields at two decade highs and TIPS offering 3%+ over inflation, iShares 20+ Year U.S. Treasury Bond Index ETF sits at the center of where many retirement portfolios are being reconsidered. The fund gives direct exposure to those elevated yields through a single ticker, which can be attractive for investors who want government backed income without picking individual bonds. At the same time, performance has recently lagged the Canadian market and return on equity is currently weak, while the ETF has a short trading history and several data gaps around profitability and valuation. The recent sequence of dividend changes adds another layer that investors will want to understand before deciding how much portfolio room to give this bond heavy ETF.

Long dated Treasuries might be reshaping retirement portfolios, yet iShares 20+ Year U.S. Treasury Bond Index ETF still feels overlooked. See how the structure, costs and payout pattern fit together in the analysis report for iShares 20+ Year U.S. Treasury Bond Index ETF

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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.