Market Shifts Helping Company Bonds, BlackRock’s Rosenberg Says

Jeffrey Rosenberg, chief investment strategist for fixed-income at New York-based BlackRock Inc. (BLK), the world’s biggest money manager which oversees about $3.6 trillion in assets, comments on investing in a low interest rate environment.

Rosenberg spoke in an interview today with Stephanie Ruhle and Scarlet Fu on Bloomberg Television’s “Market Makers.”

On investing in nongovernment bonds:

“In credit markets, because the private market is deleveraging, there’s less of it available. So it’s difficult to find, but that’s one of the supports for the market going forward that went behind our view that credit over interest rates would be a good performer.”

“It’s difficult for many individual investors to access a lot of the recommendations that I talked about, corporate bonds, commercial real estate, a lot of that is accessed through pooled vehicles, like mutual funds for example. So those are ways in which individual investors can get access to the issuance, to the credit risk that we’re talking about.”

On distortion of debt markets:

“Distortion for the corporate bond market is something good in the sense that the intervention that we have going on in the global markets is massive liquidity injections by global central banks. Most of that is directed toward consumers, toward mortgage lending.”

“Indirectly, that’s distorting in your words. In my words, benefiting the corporate market because these corporations have tremendous access to refinancing. That’s keeping their borrowing rates low. It’s giving them access to refinancing at lower rates.”

On low interest rates:

“The unintended side effect is that while we’re trying to boost the consumer and boost consumption, what we’re doing is we’re boosting corporations by reducing their interest expense, expanding their margins. You haven’t had the confidence to have that translate into jobs and capex and major economic stimulus. But what it has had as an unintended consequence, it has collapsed the default rate, because you don’t default when you have access to roll over your loans.”

On contrasts with three years ago:

“We’re in a very different environment relative to then because in 2009 you were in a distressed environment so you were buying bonds at very low prices. Today, the prices have adjusted so you’re starting at a higher point and so you have to be a little bit more cautious about where you’re putting your money with regards to the price that you’re starting at.”

On his preference for financial institutions’ bonds:

“Post-crisis, we’re talking about a structural change to financial institutions. What we’re doing is we’re taking value away from the equity side of the balance sheet and we’re giving it to the credit side. Why? Because we need to de-risk and de- lever, reduce the leverage and the risk going on in financial institutions, that’s the post-crisis world, and that benefits bondholders over the equity holders. And that’s behind most of that long-term view on financials.”

To contact the reporters on this story: Brooke Sutherland in New York at bsutherland7@bloomberg.net; Stephanie Ruhle in New York at sruhle2@bloomberg.net; Scarlet Fu in New York at scarfu@bloomberg.net

To contact the editor responsible for this story: Alan Goldstein at agoldstein5@bloomberg.net

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