NEW YORK (Reuters) - The Federal Reserve is in no rush to hike rates, creating an opportunity for risk assets but posing a threat to long-term bonds, top BlackRock Inc (BLK.N) portfolio manager Rick Rieder said on Tuesday.
Fed Chairman Jerome Powell on Tuesday vowed to prevent the economy overheating while sticking with a plan to gradually raise interest rates. Testifying before a congressional committee, he acknowledged the economy has strengthened, a remark that prompted investors to increase bets on four rate increases in 2018.
Rieder, BlackRock’s Chief Investment Officer of Global Fixed Income, said in a note the Fed has done a “respectable job,” is not struggling to keep up with inflation and “doesn’t appear to be in a rush” to raise rates.
That is good news for risk assets and investments with short maturities despite the 1.3 percent decline of the S&P 500 index .SPX on Tuesday.
But long-dated bonds are a different story, according to Rieder. The risk of long-term bonds to rising interest rates grew as the Fed pursued its unconventional quantitative easing policies, he said. The benchmark 30-year Treasury bond US30YT=RR fell 6/32 in price on Tuesday to yield 3.1629 percent.
“The long-end of the curve could well have further downside from here,” said Rieder. “This segment of the market is particularly price-sensitive today, and thus particularly perilous.”
BlackRock oversees more than $6 trillion in stocks, bonds and other assets, making it the world’s largest asset manager.
Reporting by Trevor Hunnicutt; Editing by Phil Berlowitz