BlackRock’s Rick Rieder sees a ‘generational opportunity’ for income right now

The high levels of income in the bond market right now are a “generational opportunity” for investors, according to BlackRock’s Rick Rieder. “I’ve waited for two decades of my life for some deals,” he said in an interview with CNBC, pointing to the years of low interest rates that ended in 2022. Bond yields move inversely to prices. That income is a priority now that bond duration is still no longer the reliable hedge it once was, explained Rieder, the firm’s chief investment officer of global fixed income. In other words, fixed income hasn’t necessarily offered a ballast against a drop in stock prices. “In a sense, the ability to deliver consistently high coupons to global portfolios can serve as something of a bulwark against equity market drawdowns, especially at a time when duration itself has failed to serve its traditional function,” he wrote in the firm’s mid-year outlook released Monday. Getting that income doesn’t necessarily mean taking excess risk since companies have de-levered, paying down their debt during the post-Covid period, he added. However, the opportunity isn’t going to last forever, Rieder told CNBC. He said he anticipates a boost in productivity and innovation from the “greatest technology revolution” that is now underway. That will bring down inflation and, eventually, interest rates, he added. Still, some labor softness could hit the economy in the near term, Rieder noted. Yet, he expects a pretty good second half of the year from a growth perspective — although more toward the last quarter. “A lot of corporate CEOs are sitting and waiting to see what would happen with regard to tariffs, and I think you unlock some of the spend in the capex [capital expenditures] and [research and development],” he said. President Donald Trump ‘s pause on reciprocal tariffs ends on July 8 and the deadline for a deal between the United States and Europe is on July 9. However, the president recently said he may not adhere to the deadlines, saying, ” We can do whatever we want .” Where the opportunities lie The front and the belly of the curve remain the most attractive, said Rieder, who is also the portfolio manager of iShares Flexible Income Active ETF (BINC) . The exchange-traded fund has a 30-day SEC yield of 5.45% and a 0.40% net expense ratio. BINC YTD mountain iShares Flexible Income Active ETF year to date Rieder still favors European credit and peripheral sovereign bonds, like Spain and Italy. The yields are terrific and there isn’t much concern about supply, he said. “If you’re a dollar investor — and this is something that we also haven’t seen in decades — we get a cross-currency swap benefit,” Rieder said. “Everybody’s trying to hedge their U.S. dollar exposure. Being a dollar investor you actually get the benefit and it’s tremendous,” he added. “We get an extra 2%, 2.5% benefit for being a lender in Europe and that makes all the difference in the world for a dollar investor.” He also likes securitized products in the United States. They make up 35% of BINC’s assets, with commercial mortgage-backed securities and non-agency MBS accounting for some of that allocation. Rieder has reduced BINC’s allocation to investment-grade bonds, which now make up 7% of the ETF. Instead, he said he’d rather get the income from high-yield bonds or agency MBS, the latter of which has attractive income and is much more liquid than corporate bonds. Biggest risk in the market The biggest risk facing fixed-income investors right now is the rising federal deficit, Rieder said. Concerns about it have fueled volatility in the market, he said The U.S. budget deficit hit $316 billion for the month of May, according to the Treasury Department. “There is the risk we still have to keep doing these [Treasury] auctions,” he said. “Long-end interest rates are extremely volatile and sensitive to inflation.” While Rieder thinks inflation is coming down, he isn’t sure that will happen in the next few months. “Longer term, I think we’ll be able to outrun the debt,” he said. Near term, “markets tend to sense vulnerability.” “I watch every 10-year, 20- or 30-year auction,” he added. “In the bond market, to me, it’s almost a sigh of relief when they get them done.”