BlackRock’s Rieder Says Time to ‘Put Your Shoulder’ Into Bonds ⏰⏰⏰

(Bloomberg) - #BlackRock Inc.’s chief investment officer for global fixed income, Rick Rieder, said the cooling labor market supports speculation that the Federal Reserve is done raising rates, making #bonds more appealing than they have been in months.

While US hiring picked up in August, the Labor Department’s report also showed that wage growth slowed and the #unemployment rate jumped to the highest since February 2022, the month before the central bank started tightening monetary policy.

“I think you can use this as another benchmark for the fact that we are seeing slack build in the labor force” and it comes “alongside of #inflation coming down,” Rieder said on Bloomberg Television Friday. “The Fed should be done. You can put your shoulder behind a bit more of interest-rate exposure than has been the case certainly over the last few months.”

“We like holding the front end” as “you get paid if you buy commercial paper, etc at about 6%. It’s been incredible. But I think now you can actually extend that a bit further out the curve” and “we’ve been adding some out to the belly of the curve.”

The swaps market is now pricing in that the US central bank will start easing policy by May with a quarter-point rate cut. Rieder sees that as possible, but says such a reduction will most likely happen a bit later next year. Still, he said the likely Fed pivot in 2024 toward cutting rates is part of what makes Treasuries more appealing.

“I certainly prefer being in the front to the belly,” Rieder said. But “owning some ten-year notes is not crazy. Could you go to 4.25% or 4.5%? It’s certainly a possibility. When do you want to add duration, more interest-rate exposure? When you think the Fed is now shifting into more of an easing cycle.”

He added that BlackRock did buy some 10-year notes “recently.”

Swaps traders are pricing in that the effective fed funds rate, after peaking this year at around 5.4%, will move down to around 4.2% by the end of 2024.

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