New York (Reuters) – Markets are emboldened by the tone of monetary policymakers following an interest rate hike on Wednesday, but now is not the time to take on more risk in U.S. corporate debt, top BlackRock bond investor Rick Rieder says.
Rieder, BlackRock's chief investment officer of global fixed income, also told Reuters on the phone that markets need to see some kind of agreement on U.S. tax policy reforms by summertime.
"The August recess is a very important date, and I think if we're in the summer and it doesn't look like we're getting things done, then risk markets and inflation markets would come under pressure," he said.
BlackRock managed more than $5.1 trillion in assets as of Dec. 31, 2016.
No Fed Shock Coming
The U.S. Federal Reserve raised interest rates on Wednesday for the second time in three months, but both stocks and bonds rallied as policymakers did not signal a plan to significantly accelerate the pace of monetary tightening.
"If you have any concerns about them shocking the system from a rapid rate rise, they were pretty clear that's not coming," he said.
The iShares iBoxx $ Investment Grade Corporate Bond ETF (LQD), an exchange-traded fund that tracks the lower-grade corporate market, had its best showing since November, rising 1.4% on Wednesday following price declines for the better part of the month.
‘Emerging Markets Are More Attractive’
"Emerging markets are more attractive than high yield at these levels," Rieder said.
Rieder said on Feb. 1 that the Fed would raise rates three or four times this year, a prediction he made when markets anticipated a lower than one-in-five chance of a rate hike on Wednesday.
Speeches by Fed officials after Feb. 1 pushed markets to conclude the most recent hike was all but inevitable, and suggested they could embark on a more "hawkish" rate-hike trajectory to tamp inflation risks as U.S. President Donald Trump and his Republican Party tout tax cuts, infrastructure spending and other fiscal stimulus measures.
Institutional shares of the Strategic Income Opportunities Fund run by Rieder are up 3.6% a year for the last five years, beating 89% of its peers, according to Thomson Reuters Lipper.