BlackRock’s Rick Rieder is locking in attractive yields in this corner of the bond market
The window is still open for investors to grab attractive income in the bond market, but it won’t last forever, according to BlackRock’s Rick Rieder. These days, he is gravitating toward emerging market bonds, and locking in double-digit yields before the opportunity slips away. Bond yields move inversely to prices. “I’ve never seen this sort of demand for EM globally,” Rieder said in an interview with CNBC. As the firm’s chief investment officer of global fixed income, he manages $2.7 trillion in assets. Most emerging market countries are either cutting interest rates or keeping them on hold, he said. “[As] their inflation comes down, they’ll be more aggressive on the cutting side, and you’re getting paid for it,” said Rieder, who was recently a candidate for the Federal Reserve chair nomination that ultimately went to Kevin Warsh . He expects demand to increase since so many global investors currently own a significant amount of U.S. dollar assets. “My guess is, as flows continue to come in, that premium will go away. But for now, certainly relative to high yield, the level is pretty attractive,” he said. “You have to take some currency risk, which we manage, and you have to always have to be careful about political news.” Emerging market bonds make up a small but growing portion of the iShares Flexible Income Active ETF (BINC) , which Rieder manages and has $17.3 billion in net assets. They are nearly 15% of the ETF’s assets, including both external and local debt. In October , the combined EM debt totaled 8%. Among the areas Rieder likes are Mexico, South Africa and Brazil. Two of BINC’s top holdings are government bonds from Brazil, which have yields to maturity of 13.2% and 14.84%. Government bonds from Mexico and South America are also among BINC’s holdings. When it comes to duration, Rieder continues to like the front to the belly of the yield curve – or up to five years. Duration is a measure of a bond’s price sensitivity to fluctuations in interest rates, and it’s measured in years. Issues with longer maturity dates tend to have greater duration. The fund has a smaller exposure to investment-credit corporates since spreads are tight — meaning investors get less compensation for taking on credit risk. However, the securitized market, including mortgage-backed securities and asset-backed securities, is an area where Rieder sees continued opportunities. Within collateralized loan obligations, he likes the top of the capital stack and is conservative with those further down. CLOs are securitized pools of floating-rate loans to businesses and so their coupon payments shift alongside short-term interest rate changes. Meanwhile, European credit — once one of his favored investments — has gone from “great” to “OK.” “The sovereigns, places like Italy and Spain, spreads have tightened a lot,” Rieder said. Solid yields for now, future opportunities Yields should remain solid for some time, Rieder said. He referred to this environment as the “golden age of fixed income” in BlackRock’s first-quarter fixed income outlook, released Tuesday. “While this window won’t last forever — policy easing expected later in 2026 will eventually push yields lower — the opportunity today is unusually attractive, supported by starting yields that remain in the top third of their long-term ranges across both U.S. and European investment grade markets, especially in securitized products,” he wrote. Growth may be impressive now, but Rieder doesn’t think that will be the case in about six months. He still anticipates two rate cuts from the Federal Reserve this year. As those rates come down, there will be new areas of opportunity, he told CNBC. “We’re going to be a little bit patient today, because spreads are tight, but boy, there’s going to be a chance to grow our interest rate exposure,” Rieder said. He said he would also like to increase his mortgage exposure.
<
