BlackRock’s Rick Rieder is reducing his equity holdings, explaining that top-tier bonds offering 7% to 8% now outperform the 10% to 12% returns he anticipates from stocks.
As the chief investment officer of global fixed income at BlackRock, Rieder manages approximately $2.4 trillion. He discussed the 10-year Treasury yield climbing past 5% during an appearance on Yahoo Finance’s Sozzi Unleashed.
Why the US Treasury Yield Matters
The 10-year yield represents the interest the US government pays on 10-year borrowing, influencing mortgage rates, corporate loans, and equities.
Earlier this month, it surpassed 5% for the first time since 2007. According to TradingView figures, it reached 5.167% on September 26, while the 30-year yield hit 5.49%.
On September 16, the Federal Reserve lifted its benchmark rate to 3.75%–4%, marking its initial rate hike in over three years. Rieder described this environment as “not a crisis, but an eye-opener.”
Assigning equities a grade of B-minus, Rieder noted this is lower than his rating has been for quite some time. While he continues to favor memory storage and semiconductor manufacturers due to their existing order backlogs, the broader market faces pressure from slower artificial intelligence growth and higher real interest rates.
An income portfolio managed by Rieder currently offers a 7.2% yield backed by an A-minus credit rating. The fund also invests in debt instruments that mature or reset within a three-year window, helping to cushion against potential declines if interest rates keep climbing. Additionally, he has trimmed his holdings in mortgage bonds, which typically drop in price when rates rise.
These elevated yields have pushed mortgage rates as high as 7.45%, prompting Rieder to describe the housing sector as “frozen.”
What Another Fed Rate Hike Would Cost
Although Rieder believes the Federal Reserve ought to hold off on further rate increases, he anticipates one additional hike and cautioned that it would drive up the expense of servicing the national debt.
“For every 100 basis points of move, it’s somewhere between 130 and 150 billion dollar cost to the US government,” he said in the interview.
A move of 100 basis points is equivalent to one percentage point.
High yields are not universally viewed as a negative for equities; Fundstrat analyst Tom Lee contends that climbing yields actually benefit robust corporations.
Rieder noted that historically, when the 10-year yield begins at 5%, the following year’s bond performance averages approximately 9.5%. Even with this track record, he advised investors not to rush into the market immediately, citing robust economic growth, ongoing conflict, and massive new issuance of government debt.
At present, he is monitoring employment data for indications of a cooling US economy. Real-time monitoring tools at BlackRock currently estimate growth between 6.5% and 7%.