(Bloomberg) -- BlackRock Inc.’s Rick Rieder said he favors high-yield bonds in Europe, commercial-mortgage debt and some auto asset-backed securities as the Federal Reserve prepares to trim its record stimulus.
The Fed will probably begin to reduce its $85 billion of monthly purchases of Treasuries and mortgage bonds in March, Rieder, chief investment officer for fundamental fixed income, said today at a media conference at the New York offices of the world’s largest money manager.
Investing in securities with greater credit risk and less sensitivity to changes in interest rates should help shield investors from the price declines that coincide with increasing yields, he said.
“There’s a rotation within fixed income that is profound” as securities such as investment-grade bonds that have traditionally been considered safer become more risky with rates poised to rise, Rieder said.
Speculative-grade bonds worldwide yield an average 6.4 percent and have returned 5.68 percent this year, according to Bank of America Merrill Lynch index data. That compares with a yield of 2.87 percent on investment-grade obligations that have gained 0.31 percent.
The Fed has distorted markets through its quantitative easing program, Rieder said, citing data showing Treasuries and mortgage-backed securities account for 65.6 percent of a benchmark Barclays Plc bond index.