Rieder says recession pricing in bonds was overdone, sees attractive yields after rate cut

BlackRock’s Rick Rieder said investors should lean into still “attractive” opportunities in the bond market following the Fed’s big rate cut of 50 basis points.

BlackRock’s global chief investment officer of fixed income appearing on CNBC Monday noted the back-up in the bond market after the Federal Reserve last week chopped down the fed funds rate by a large half-point to 4.75%-5%.

“If you go back a week or two ago, this extraordinary movement towards pricing to hard-landing recession and the fact that the Fed was behind … it was too much,” said Rieder. The 10-year yield (US10Y) had climbed since the Fed decision, with prices falling. It was rising during Tuesday’s session to 3.79%, and has bounced up from 3.608% on Sept. 11, a 15-month low.

Investors should lean into what BlackRock has previously dubbed the “golden age of fixed income,” Rieder said. The current period features a mix of high yields and low-implied volatility, allowing investors to create a diversified portfolio of fixed-income assets yielding up to 6.5% without taking substantial duration or credit risk.

“So your real rate of return, or your real rate of interest, is very attractive,” he said. Investment grade corporate bonds and agency debt can be part of such portfolios, BlackRock has said.

BlackRock continues “to believe in middle of the yield curve assets,” particularly those yielding more than U.S. Treasuries, Rieder said on X just after the Fed rate cut. Those assets “provide great income, as real rates are still high, even though the Fed will be attempting to bring those elevated real rates down in the year to come,” he said.

The Fed being sensitive to the economy and the labor market is positive for stocks (SP500)(COMP:IND)(DJI), Rieder said. However, “I find equities just okay, not great,” in part because the cost of debt is still elevated, he said. “And then if you look at multiples, equities aren’t that interesting,” and investors are “paying a lot” for stocks, Rieder said.

Investors will look for ways to lock in yield over the next three to five years as they see the yield on cash coming down and rethink prospects for continued “explosive growth” in corporate earnings, particularly in tech stocks, the BlackRock executive said.

Bond market ETFs include (AGG), (BND), (HYG), (TIP) and (BINC), with the latter fund actively managed by Rieder.