BlackRock's Rieder Favors Equities Over Long-Term Treasuries for 19% Yield

Rick Rieder, the Chief Investment Officer (CIO) of BlackRock's global fixed income business, has expressed a preference for U.S. equities over long-term U.S. Treasuries, citing the more attractive returns offered by the stock market. Rieder noted that while short-term bonds are currently more appealing from a yield perspective, long-term bonds have become increasingly correlated with stock market volatility, diminishing their effectiveness as a risk hedge. In this context, the expected returns from equities make them a more attractive asset for investment portfolios.

Rieder elaborated on his stance, stating, "Today, I am more inclined to invest in stocks. The net asset yield of stocks is 19%. So, consider this: the book value of the stocks I hold will increase by 19%—I can achieve this growth in two years, or I can purchase long-term bonds at a rate below 5% (when the annual consumer price inflation was around 2.4%). I would choose equities, especially growth equities."

Both asset classes have experienced price fluctuations due to uncertainties surrounding President Trump's trade policies and future government spending plans. This year, the total return of the S&P 500 index has risen by nearly 6%, driven by a strong rebound from April lows, led by growth-oriented technology stocks, which set a new historical high. Concurrently, the iShares 20+ Year Treasury Bond ETF (TLT), with assets totaling 490 billion dollars, has seen a total return of approximately 2% so far this year.

Rieder anticipates that long-term bonds will eventually become attractive as inflation and interest rates decline. However, he is currently prepared for a steepening yield curve, which implies that longer-term bonds will underperform shorter-term bonds. This year, this type of trade has been popular, partly due to concerns that the expanding U.S. federal deficit will lead to increased bond issuance.

Rieder concluded, "There will come a time when we will want to hold assets with a certain duration. But I do not believe this is the current market trend."