Rick Rieder sees historic opportunity in investment-grade bonds

Rick Rieder, BlackRock’s chief investment officer for global fixed income, told CNBC in an exclusive interview that while investors may be wary of the volatility currently hitting some parts of the bond market, there is a “historic” opportunity to capture attractive yields on high-quality credit.

He said investors could now build a diversified portfolio with a duration of less than three years, a yield of 7% or more, and an average credit rating of A-. Duration is a measure of a bond’s price sensitivity to changes in interest rates, and bonds with shorter maturities tend to have shorter durations.

“These yields are not only historic in terms of where they are, but the only time they’re going to be this high is if there’s some kind of problem, whether it’s an economic problem or a default problem,” Rieder said in an interview Wednesday about his fourth-quarter outlook.

That’s not the case now, he said, as the economy remains strong. “So we don’t have to worry about a material default.”

Although Mr. Rieder did not specifically identify the credits in the aforementioned portfolio, iShares Aaa – A-rated Corporate Bond ETF (QLTA) The 30-day SEC yield is 5.68% and the effective duration is 6.48 years, higher than the Leader’s low-duration focus.

of iShares Flexible Income Active ETF (BINC)Managed by Leader, this stock has a 30-day SEC yield of 5.66% and a 3-year term, but its portfolio is above investment grade credit.

Rieder said he thinks investment-grade corporate bonds are the biggest opportunity right now, but he hasn’t said anything about it “for a long time.” Investment grade bonds are rated AAA to BBB- by S&P and Fitch and Aaa to Baa3 by Moody’s.

This includes hyperscalar corporate bonds, which have flooded the market with issuance this year as AI infrastructure ramps up. alphabet, Amazon, meta platform and oracle As of Oct. 20, the company has issued approximately $228.4 billion in bonds since the beginning of the year, according to LSEG.

“The leverage is very low. There’s a lot of cash flow coming in,” Rieder said of hyperscalers in general. “You can now buy these higher quality entities paying very attractive yields.”

Leader iShares Flexible Income Active ETF increased its allocation to investment-grade companies to 14.3% of its portfolio. In July, it was 8.5%.

However, he advised investors to remain patient and watch as interest rates could continue to rise.

“Your starting point is the best barometer of what your returns will be,” he pointed out. “So if you get seven and a quarter, you’re probably going to get an 8, you’re probably going to get a 6, but… if you hold it for a year or more, you’re going to get that yield.”

He warned that even outside of investment-grade credit, caution is needed, requiring more selectivity and scrutiny. This includes the name of the AI.

“There are parts of data center supply that are not guaranteed or supported by hyperscalers,” he said. “We have been more cautious and will continue to be more cautious.”

Bond markets, particularly high-yield credit, have been shaken as investors grow concerned that some companies are taking on huge amounts of debt to fund the buildout of artificial intelligence.

Junk rating coreweave became a prime example, with stock prices falling, bond yields rising, and credit default spreads widening. oracleThe company, which ranks below investment grade and is seen as a bellwether in the broader AI market, has also taken some hits.

Rieder is also keeping an eye on the Fed, which is expected to raise the federal funds rate again in December to combat inflation. Markets are currently pricing in a nearly 90% probability that the central bank will raise interest rates at that time, according to CME Group’s FedWatch tool.

Money managers expect that to happen, but they don’t agree with it. He said rising interest rates are hurting some parts of the economy, such as housing, but haven’t had a big impact on other areas, such as technology companies’ capital spending, which is a big driver of growth.

“They’re not borrowing at overnight rates,” Rieder said. “There is a lot of variable rate financing in housing, credit card and auto financing, and we can see that these areas are already under pressure.”

Rather, he added, the market will continue to set a price on the AI ​​supply that enters the market.

Rieder sees a number of risks ahead, including rising levels of government debt around the world. In the United States, the fiscal deficit in 2026 has expanded to $2 trillion.

“We need to be careful in the long run that the more central banks raise interest rates, the higher the cost of debt for already indebted governments,” he said.

It is also worth paying attention to the supply of bonds by AI companies.

“We’re seeing a crowding-out effect with the upcoming supply of things like data centers and hyperscalers,” he said. “Government interest rates are on the rise, so we have to keep an eye on this.”

In the meantime, Mr. Rieder will continue to benefit from high investment-grade yields and “will be smiling a lot,” he said.