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BlackRock's Rick Rieder: How to invest in low-yield environment

With falling bond yields around the globe and the German 10-year bund going negative for the first time Tuesday, investors in fixed income need to make sure their portfolio is diversified, BlackRock's Rick Rieder warned.

That means trying to get into places that haven't had their yields "distorted by this extraordinary monetary policy," he said in an interview with "Power Lunch" on Tuesday.

"When you bring rates down, you extend the risk of fixed income," said Rieder, the chief investment officer of fundamental fixed income for BlackRock.

"It doesn't take much, when rates back up, when you are at such low yield levels, you can create loss in portfolio. I believe you have to diversify your fixed income."

He would look at Indonesia and India, as well as the municipal bond market.

As for the German bund, Rieder believes there are a few reasons why investors flocked to the market and created the extreme moves.

"I think people are buying them, A: because they've shorted them against other assets, B: because they are a flight to quality and I'm going to hold them and C: because the ECB has so many of them and there are not that many of them around," he explained.

With the 10-year bund falling below zero, investors are essentially paying to lend money to the government for a full decade.

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