By expanding his investment horizon to include longer-dated bonds, Rieder is demonstrating his confidence in the potential returns offered by these securities. This decision is likely driven by his outlook on the market and the current economic conditions, indicating a shift in his investment strategy towards a more long-term perspective.
Rieder's expertise and track record in the financial markets make his investment decisions closely watched by investors and analysts alike, as they seek to gain insights into his views on the market trends and opportunities.
Expensive Spreads in Investment-Grade Corporates
BlackRock's chief investment officer for global fixed income, Rick Rieder, believes that there is significant potential for income in the bond market, particularly in longer-dated corporate bonds. Rieder has recently made adjustments to the iShares Flexible Income Active ETF (BINC) to include longer-dated corporates, citing their attractive yields and value.
Rieder highlights that while spreads have been tight in investment-grade corporates, longer-dated bonds trading at lower prices present a compelling opportunity. These bonds, with maturities ranging from 20 to 40 years, are currently trading at discounted levels, offering yields in the range of 5% to 6%.
Fed's Stance on Interest Rates and Market Expectations
Despite the Federal Reserve leaving interest rates unchanged, concerns about inflation persist following a higher-than-expected consumer price index reading. Fed Chair Jerome Powell indicated that the central bank is not yet meeting its inflation target of 2%, leading to uncertainty in the market about future rate adjustments.
Demand for Longer-Dated Assets Amid Limited Supply
Rieder notes that while there is limited bond supply for longer-dated assets, there is still demand from entities such as pensions and life insurance companies. Companies prefer issuing shorter-dated bonds to avoid higher costs, creating an opportunity for investors in longer-dated securities.
Focus on Quality Assets in BINC
The iShares Flexible Income Active ETF (BINC) primarily focuses on high-quality assets in Europe and the U.S., with a strategic allocation to shorter-maturity debt. Rieder emphasizes the importance of maintaining a balance between risk and return, with a significant portion of the fund allocated to high yield bonds and loans.
European Market Dynamics and Asset Allocation
Rieder expresses optimism about the European high-yield market, citing the supportive stance of the European Central Bank. BINC's asset allocation includes a mix of securitized products, with an emphasis on collateralized loan obligations and commercial mortgage-backed securities.
Attractive Opportunities in Challenging Markets
Despite concerns in certain sectors such as commercial mortgage-backed securities, Rieder remains positive about the potential for attractive returns in areas where perceived risks may present opportunities. By carefully selecting assets and maintaining a diversified portfolio, BINC aims to navigate through evolving market conditions.
