BlackRock's Rieder Shifts from Stocks to High-Grade Bonds

BlackRock's Rick Rieder is reducing his stock holdings. He believes that investment-grade bonds yielding 7% to 8% now offer a better deal than the 10% to 12% he forecasts for equities.

Rick Rieder is the chief investment officer for global fixed income at BlackRock, overseeing roughly $2.4 trillion. He discussed the 10-year Treasury yield surpassing 5% on Yahoo Finance's Sozzi Unleashed.

Why the US Treasury Yield Matters

The 10-year Treasury yield is the interest rate the U.S. government pays to borrow money for a decade. It affects mortgage rates, corporate loans, and stock prices.

This month, it climbed above 5% for the first time since 2007. According to TradingView data, it was at 5.167% on September 26, with the 30-year yield at 5.49%.

On September 16, the Federal Reserve raised its benchmark rate to a range of 3.75% to 4%, its first increase in more than three years. Rieder called the moment "not a crisis, but an eye-opener."

Rieder gave stocks a B-minus grade, lower than his usual rating. He still favors chipmakers and memory storage companies, where he observes order backlogs. However, higher real interest rates and a slowdown in AI growth are weighing on the rest of the market.

An income fund he manages yields 7.2% and has an A-minus credit rating. It holds bonds that mature or reset within three years, limiting potential losses if rates keep rising. He has also sold some mortgage bonds, which lose value as rates increase.

Yields have already pushed mortgage rates to 7.45%. Rieder described the housing market as "frozen."

What Another Fed Rate Hike Would Cost

Rieder argued that the Fed should not be raising rates. Still, he expects one more rate hike. He warned it would increase U.S. debt costs.

"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.

One hundred basis points equal one percentage point.

Not all analysts view high yields as negative for stocks. Fundstrat's Tom Lee argues that rising yields favor strong companies.

Rieder added that historically, when the 10-year yield starts at 5%, bonds have returned an average of about 9.5% over the following year. Nonetheless, he advised against jumping in now. He cited strong growth, a war, and heavy new government borrowing as reasons.

He is now watching jobs reports for signs that U.S. growth is slowing. BlackRock's real-time tracking indicates growth at 6.5% to 7%.