Take Five: Rick Rieder of BlackRock

Bond strategist looks beyond the Fed to explain market's volatility

Rick Rieder, co-head of BlackRock Inc.’s Americas Fixed Income Group, looks beyond the Federal Reserve to explain the recent market volatility.
“Japan, China and the emerging markets all played a role,” he said. “The Fed is getting too much credit or blame for this.”
Mr. Rieder, who is responsible for nearly $650 billion in fixed-income assets, thinks that the U.S. economy is strong enough to start standing on its own and moving away from quantitative easing.

InvestmentNews: Are the financial markets overreacting to the recent comments from Fed Chairman Ben S. Bernanke regarding an eventual tapering of quantitative easing?
Mr. Rieder: I think the market is overreacting, but I’m surprised it is reacting as aggressively on the front end of the curve. Five years [in duration] and in is where the market reaction has been pretty extreme under the assumption that once the Fed takes its foot off the gas, they will move right into raising rates.

InvestmentNews: What is your outlook for how the Fed will start tapering the $85 billion monthly quantitative-easing program?
Mr. Rieder: I think the assumption is for something to start in the fall, when I think the Fed starts reducing the size of the program and to gradually remove the program in mid-2014.
I also believe it will be 2015 before they would start to move the funds rate.

InvestmentNews: Is the economy, which is growing at less than 2%, strong enough to continue growing without so much support from the Fed?
Mr. Rieder: Yes, I do think the economy will support a pullback in quantitative easing, because remember — they are just removing the excessive asset purchases. I think $85 billion a month was just too much.

InvestmentNews: Aside from the Fed’s recent comments, are there other factors causing the market volatility?
Mr. Rieder: I actually think the Fed is getting too much credit — or blame — for the volatility. I think this all started with the markets in Japan, where people are starting to question the banking policy. Then there is the slowdown in China and the emerging markets.

InvestmentNews: Where do you see value in fixed income right now?
Mr. Rieder: Two months ago, there were so many crowded trades, but now things are starting to make sense again. The emerging markets and high yield are starting to show some value, as well as the commercial-mortgage area.