BlackRock’s Rieder Urges Investors to Look Beyond US Junk

BlackRock Inc.’s Rick Rieder says US high-yield risk premiums are not wide enough to entice investors, and that there are other areas of credit to consider allocating to.

“Part of the argument against high yield this year has been the spread’s not interesting at all,” said Rieder, BlackRock’s global fixed income chief investment officer, on Bloomberg Television Monday. “You can get yield in a bunch of other places,” he added.

His argument for passive investors is that there’s a wide dispersion of risk premiums in junk bond exchange-traded funds that track benchmark indexes. He points out that about half the supply of US junk bonds trades at spreads tighter than 300 basis points, while the rest trade above 800, leaving little in between.

European high-yield bonds are a different matter, though. “European high yield if you’re a dollar investor, you swap it back to dollars and you get paid well into the 9s,” he said. “That strikes me as fair.”

The average spread for US junk bonds stands at 376 basis points, the lowest level since April 2022, according to Bloomberg index data. Risk premiums touched 1,100 basis points in March 2020, for comparison.

“You are getting a lot of tight stuff, and you’re getting a lot of, what I would argue is, companies that are under some stress,” said Rieder. He also emphasized the importance of credit selection and choosing specific bonds that do actually pay investors for the risk being taken.