BlackRock CIO Rick Rieder is trimming stocks for high-grade bonds yielding 7% to 8%, saying those returns now compete with the 10% to 12% he expects from equities.
Key Points:
- Rieder rates equities a B-minus while shifting some exposure toward high-grade bonds with yields around 7% to 8%.
- A fund he runs yields 7.2% with an A-minus credit rating and focuses on bonds maturing or resetting within three years.
- He expects another Federal Reserve hike and says each percentage-point increase can add $130B to $150B to annual U.S. government costs.
Rieder Bond Shift
Rieder, BlackRock’s chief investment officer of global fixed income, told Yahoo Finance that the rise in Treasury yields has changed the balance between stocks and bonds. He oversees about $2.4 trillion and called the bond-market move “not a crisis, but an eye-opener.”
The 10-year Treasury yield rose above 5% this month for the first time since 2007, while TradingView data put it at 5.167% on Sept. 26. The 30-year yield stood at 5.49%.
Rieder gives equities a B-minus and still sees strength in chipmakers and memory-storage companies with order backlogs. However, he said higher inflation-adjusted rates and slower AI growth make other parts of the stock market less attractive compared with high-grade fixed income.
One income fund he manages yields 7.2% with an A-minus credit rating and holds bonds that mature or reset within three years, limiting sensitivity to further rate increases. Rieder has also reduced some mortgage-bond exposure as rising yields pressure prices.
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Tom Lee View
Rieder said the Federal Reserve should not be raising rates, although he still expects one more increase after the benchmark rate moved to 3.75% to 4% on Sept. 16. He estimated that every 100-basis-point increase costs the U.S. government “somewhere between 130 and 150 billion dollar” annually.
That view is not universal. Fundstrat’s Tom Lee has argued that higher yields can favor stronger companies, while Rieder said a 10-year yield starting near 5% has historically been followed by an average one-year bond return of about 9.5%.
Rieder is not urging investors to rush into long-term Treasurys, citing strong growth, war and heavy new government borrowing, while BlackRock’s real-time tracking puts U.S. growth at 6.5% to 7%. He is watching jobs reports for signs of slowing growth.
The latest shift follows a sharp rise in borrowing costs: mortgage rates have reached 7.45%, and Rieder described the housing market as “frozen.” The 10-year Treasury’s move above 5%, alongside the Sept. 16 Fed increase, has revived rate pressure that markets had not faced at these levels since 2007.
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