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NEW YORK (Reuters) – Long-dated bonds “represent a significant risk” as investors focus on signs inflation is rising, a top portfolio manager with BlackRock Inc said on Wednesday.
There is a “strong case” for owning short-term U.S. bonds as inflation accelerates, said Rick Rieder, chief investment officer of global fixed income at BlackRock, the world’s biggest asset manager.
“It’s vital for investors to carefully consider where on the curve, and precisely how they’re taking duration risk today, given the extreme continued risk the back-end of the yield curve faces,” Rieder said in an emailed statement.
Duration measures the sensitivity of a bond’s price to changes in interest rates.
Rieder described inflation as “accelerating” following a U.S. Labor Department report that showed consumer prices rose more than expected in January.
The U.S. Federal Reserve could deliver three or four interest rate hikes this year, Rieder said, as it works to head off pressures that could erode the value of the dollar.
The futures market is currently pricing in three increases in the federal funds rate this year.
Rieder has long said the economy is in good shape and ready for more rate hikes even as the Fed fell short of its own inflation target in recent years. He has argued that economic statistics do not fully capture the fact that consumer prices are held in check by new technologies.
Rieder had forecast three or more rate hikes at the beginning of 2017, at the time a minority viewpoint, and he was ultimately vindicated as the Fed raised rates three times last year.
On Wednesday, Rieder said he does not expect that stronger inflation will have “negative macroeconomic implications.” Investors are currently debating whether tax cuts and a bigger U.S. budget deficit will cause the economy to overheat and force the Fed to hike quickly, hurting markets.
Institutional shares of Rieder’s Strategic Income Opportunities Fund were up 6/10ths percent this year, as of Tuesday, beating most of its peers, according to Thomson Reuters’ Lipper unit.
BlackRock oversees more than $6 trillion in stocks, bonds and other assets.
Reporting by Trevor Hunnicutt; Editing by Leslie Adler