BlackRock's Rieder says bond yields have not peaked and Fed will lean hawkish Wednesday

Published Tue, Nov 1 202212:47 PM EDT

Patti Domm @in/patti-domm-9224884/@pattidomm

BlackRock's Rick Rieder said bond yields have not yet hit their peak, and he continues to find the high rates available on short duration bonds and securitized assets to be very attractive. "We're buying all this short-dated high quality securities, investment grade assets, and we just keep buying them," said Rieder, chief investment officer of global fixed income. "We're getting 6%, 6.5% ,and some 7%. I think it's unbelievable for fixed income, not to take a lot of interest rate risk, not to take a lot of credit risk and to get these sort of yields. It's Nirvana." In fact, Rieder said he also sees Treasury bills at their most attractive in two decades , with the 3-month bill yielding around 4.13%. "T-bills have become really sexy. I love them. They're liquid. The yield is great," he said. Rieder said he uses them in his personal account. "I haven't been this excited about T-bills in 20-years." In a telephone interview, Rieder discussed his views on the current investment climate and what he thinks the Federal Reserve will do Wednesday afternoon, following its two-day meeting. Rieder said he expects the central bank to raise interest rates by 75 basis points Wednesday but then pare back the size of hikes by December. The Fed is expected to ultimately stop rate hikes by the spring of next year. But Rieder does not envision a rate cut, as some in the markets expect by the end of next year. He also expects Fed Chairman Jerome Powell to sound somewhat hawkish during his press conference Wednesday. "He's got to be really careful not to be seen as easy or pivoting," said Rieder. "I think he's got to draw the line on 'inflation is our objective'... I think he's got to be aggressive about that. If he blinks and financial conditions ease too much...that's not the direction he or they want to go down." Rieder said Powell will try not to cause a surge in stocks, like the rally last week. "The technicals in the equity market are extraordinary. People are short equities, and the technicals in the equity market are incredible," he said. Because other central banks did not hike as much as expected, investors are expecting a Fed "pivot" and "that's just not true," he said. Corporate bonds attractive Rieder said he likes corporate bonds much more than real estate. "I like the credit market a lot more than the securitized market these days," he said. "It's totally different than the last couple of years. I'd much rather stay in credit. The companies are in good shape." Rieder said he expects more selling in the Treasury market, and real rates to stay high. "My sense is rates are closer to the highs and especially at the front end of the curve, I think they're closer to the highs," he said. "But I don't think you could write that in stone." Rieder said inflation should not be underestimated, and it is more persistent in part because of the explosive growth following the pandemic as well as the shortage of workers. "The stickiness of this inflation is pretty extraordinary...I think inflation is coming down," he said. Freight costs, semiconductor inventories and retailers' inventories indicate inflation is improving in the U.S. "I don't think there's any question inflation will be lower over the next few months than it is today."