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BlackRock's Rieder sees 3 percent 10-year yield in near future

Rick Rieder
Katie Kramer | CNBC
Rick Rieder

The benchmark 10-year Treasury yield, correlated to home mortgages, could jump to 3 percent in the first quarter of next year, says BlackRock's Rick Rieder.

The 10-year touched 2.64 percent in tumultuous trading early Thursday, after the Fed Wednesday raised interest rates as expected, and also slightly increased its forecast from two to three more rate hikes for 2017. The two-year yield is most directly linked to Fed rate hikes, and that rose to 1.28, a seven year high.

"I think we're moving into a healthier environment where the economic data matters. You have a Fed that is certainly watching global growth and watching inflation around the world," said Rieder, CIO of global fixed income at BlackRock.


Rieder said it's possible the 10-year could reach 2.75 percent by the end of the year. "I certainly think we could hit a 3 [percent 10-year yield] by the first quarter of the year," he said in a telephone interview with CNBC.

The 10-year was last at 3 percent in January 2014. Rieder said after it reaches 3 percent again, it may not have much further to go immediately. The 10-year is important as it correlates to rates on loans, like fixed-rate mortgages. Bond market volatility drove fixed 30-year mortgages above 4 percent recently, and they are currently in the 4.25 to 4.5 percent range.

"I think we've done a lot of the work so far," he said of the move in the 10-year yield, which was around 1.80 percent on Election Day. He said the higher rates attract buyers looking for duration, like insurance companies and pensions, and that helps keep a lid on yields.

Rieder said President-elect Donald Trump's plans to cut corporate taxes could be a positive for the economy, and the business surveys are picking up. "I'm on the enthusiastic side. I think growth is going to be better than people think, and if you get that, the Fed will react to it," Rieder said.

Rieder says tax cuts can cushion the impact of higher interest rates, in an appearance on "Squawk Box."

The two-year Treasury yield, which is most sensitive to the Fed, rose to 1.27 percent Wednesday, its highest level in seven years. The 10-year jumped to 2.64 percent early Thursday but backed down to 2.60 percent in late morning trading.