(Bloomberg) -- Rick Rieder is still banking on higher Treasury yields.
BlackRock Inc.'s global chief investment officer for fixed income sees the 10-year U.S. yield reaching about 3.25 percent this year, from about 2.78 percent now. That's in contrast to growing speculation that the benchmark already peaked for 2018 when it topped 2.95 percent in February.
Yields will climb anew because inflation will accelerate in the months ahead as the Trump administration's fiscal-stimulus efforts boost U.S. growth and debt issuance, Rieder said Wednesday at a press briefing in New York. Core inflation will probably peak around 2.5 percent in the next year, relative to 1.8 percent in the latest reading, he said.
The perspective from the world's biggest asset manager places it squarely in the middle of one of the key debates in the $14.7 trillion Treasuries market.
To bond bulls, traders are about to experience déjà vu from 2017. Their view is that yields rose too fast to start the year (again) and priced in a too-rosy economic outlook. For the bears, with the Federal Reserve intent on tightening policy into a strengthening economy, it's a mistake to bet on lower yields. After all, even the recent stock-market turmoil could barely drive bonds out of their range.
That's not to say Rieder, 56, who joined BlackRock in 2009, foresees a dramatic leap in yields.
“We may not see 4 percent for a long, long time,” he said. The Fed is on track to raise rates three or four times this year and will keep going into 2019, he said. But by 2020 or 2021, the U.S. economy could be in a recession, in his view.
No Signal
He's not relying on the yield curve for that forecast, even though it's the flattest in more than a decade. When it dips below zero it historically has predicted a recession.
“I don't think there's any signaling whatsoever” in the curve, which is too flat and driven by pensions and international investors purchasing longer-dated securities, Rieder said.
The best bet is to buy short-dated Treasuries, Rieder says, even though they're most vulnerable to Fed hikes.
That's because when adjusted for volatility, they offer a better risk-reward prospect than pretty much any developed-market 10-year security, the money manager said.
To contact the reporter on this story: Brian Chappatta in New York at bchappatta1@bloomberg.net.
To contact the editors responsible for this story: Benjamin Purvis at bpurvis@bloomberg.net, Mark Tannenbaum, Greg Chang
©2018 Bloomberg L.P.
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