BlackRock CIO cuts stocks for high-grade bonds paying 7% to 8%

BlackRock CIO Rick Rieder is cutting stocks for high-grade bonds paying 7% to 8%. Rieder expects equities to return 10% to 12%. Rieder oversees about $2.4 trillion as BlackRock's chief investment officer of global fixed income. The 10-year Treasury yield rose above 5% this month for the first time since 2007. TradingView data showed the 10-year yield at 5.167% on September 26. The 30-year yield stood at 5.49%. The Federal Reserve raised its benchmark rate to 3.75% to 4% on September 16. The increase was the first Fed hike in more than three years. Rieder called the situation not a crisis but an eye-opener. Rieder graded stocks B-minus. He still favors chipmakers and memory storage because he sees order backlogs in those areas. Higher inflation-adjusted rates weigh on the rest of the market. Slowing artificial intelligence growth also weighs on the rest of the market. An income fund Rieder runs yields 7.2%. The fund has an A-minus credit rating. The fund holds bonds that mature or reset within three years. That structure limits losses if rates continue to rise. Rieder has sold some mortgage bonds. Mortgage bonds lose value when rates rise. Mortgage rates reached 7.45%. Rieder said the housing market is frozen. Rieder argued that the Federal Reserve should not raise rates. Rieder still expects one more rate increase. He warned that another increase would raise US debt costs. Rieder said each 100-basis-point move would cost the US government between $130 billion and $150 billion. One percentage point equals 100 basis points. Fundstrat's Tom Lee argues that rising yields favor strong companies. Rieder said bonds returning after a 5% 10-year yield have averaged about 9.5% in the following year. Rieder advised against rushing into bonds because of strong growth, a war, and heavy new government borrowing. Rieder is watching jobs reports for signs that US growth is slowing. BlackRock's real-time tracking puts growth at 6.5% to 7%.