Thursday, June 27, 2013

Blackrock's Fixed Income CIO Talks About the Normalization of Interest Rates

Rick Rieder, BlackRock's Chief Investment Officer of Fixed Income, was the speaker at this year’s Make a Difference –Wisconsin conference in May. He’s one smart fellow and when he talks, it makes sense to listen.

In his recently published June newsletter, Mr. Rieder acknowledges that the Federal Reserve has ‘crossed the Rubicon and is headed toward a normalization of interest rates’. The following is a summary of his observations.

  • The Federal Reserve’s task in recent years (supporting the economic recovery, in the absence of sustained fiscal aid) has been tremendously challenging, but despite much criticism, its successes are significant.
  • The eventual withdrawal of Fed asset purchasing (which he believes is nearer than other prognosticators) should keep market volatility levels elevated (and fixed income pricing under pressure), but it is also a signal of economic gains.
  • In this context, he believes that investors should be more tactical in searching for opportunities, focus on liquidity, and mitigate interest rate risk via a shorter duration approach.

Like one of my other fixed income favorites, Dan Fuss, Rick Rieder is a straight-shooter who calls them like he’s sees them. His statements are pretty clear – he sees an ending of QE3 and the normalization of interest rates. I can't say I disagree with him.