Rick Rieder, Chief Investment Officer for Global Bonds at BlackRock, is changing his investment strategy by reducing the equity portion of his portfolio and shifting towards high-quality bonds. He notes that the yield on such bonds is 7% - 8%, which surpasses the expected 10% - 12% from equities.
Rieder manages assets totaling approximately $2.4 trillion and in his recent interview with Yahoo Finance emphasized that the yield on 10-year U.S. Treasury bonds has exceeded 5% for the first time since 2007, reaching 5.167% on September 26, while 30-year bonds hit 5.49%. On September 16, the Federal Reserve raised the federal funds rate to a range of 3.75% - 4%. Rieder characterized the current situation as "not a crisis, but a sobering signal." He rated equities at a B- compared to previous periods. However, he remains positive about chip and memory manufacturers, where he sees growth in order books. Nonetheless, rising real rates adjusted for inflation and slowing AI growth are putting pressure on the broader market.
Rieder also manages a fund yielding 7.2% with a credit rating of A–. This fund includes bonds that are maturing or being repriced within three years, which reduces risks in a rising rate environment. He has also sold part of the mortgage bonds that lose value as rates rise. Thus, interest rates are already reaching 7.45%, leading to a "freezing" of the residential market. Rieder believes that the Fed should not raise rates again, although he expects one more increase. He warned that each 100 basis point increase adds an additional cost of $130 - 150 billion for the U.S. government. He explained: "For each increase of 100 basis points, it will cost the U.S. government about $130-150 billion."
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