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BlackRock: Why bonds are better than stocks

The great race: Stocks vs. bonds

Stocks surged this week but BlackRock's chief investment strategist says you shouldn't let that fool you. The safest place to invest your money is in the bond market, he said.

Concerns over the direction of the Federal Reserve's monetary policy have whipsawed stocks, while injecting more of a fear factor into yields. Yet BlackRock's Jeff Rosenberg thinks the volatility can work to the advantage of bond investors.

Fed Chair Janet Yellen "has taken away a lot of the fear of a very soon and potentially fearful move by the Fed. And that's really going to cap how big of an increase we're going to see in interest rates," Rosenberg told CNBC's "Fast Money" this week.

He added, "We're positively inclined to bonds here, as we've been before, in terms of interest rate risk."

'Paranormal' stocks

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The U.S. central bank's decision to keep interest rates unchanged in September sent stocks on a tear. The closed up 3.7 percent for the week, its second-best such period of the year so far.

This is what Rosenberg calls "the paranormal"; when bad news means good news for the stock market. But on the flip side, he says bonds are not yet convinced.

"We've been pretty defensively positioned when it comes to equity risk in the fixed income markets because of those global and international developments that the Fed warned of — and those issues are still with us," said Rosenberg. He believes there's too much vulnerability in risky assets like stocks.

The S&P 500 index has surged 3.5 percent in the last month, and ended Friday up 3.26 percent for the week, its best since the week ended Dec. 19, 2014. Yet the two exchange-traded funds (ETFs) that track returns in the bond market, the Total Bond Market ETF and the Core U.S. Aggregate Bond ETF have remained nearly flat on the year.

Yet according to BlackRock's fixed income guru, that doesn't mean they should be dismissed.

Rosenberg says that interest rates aren't going to be as high as people thought, no matter when the Fed decides to raise them — and an investment in bonds negates the potential volatility you could experience in the stock market.