Corporate bonds are among the most attractive fixed-income assets with most sovereign-debt yields below the level of inflation and central banks easing, according to Jeffrey Rosenberg of BlackRock Inc. (BLK)
“That’s a new world of investing for fixed-income investors,” Rosenberg, chief investment strategist for fixed income in New York at BlackRock, which has $3.5 trillion under management, said on Bloomberg Television’s “Surveillance” during an interview with Tom Keene and Sara Eisen. Investors should “concentrate your fixed income in the different types of risk, such as corporate bonds, emerging market debt, high-yield and floating rate.”
Metrics of inflation, such as those from inflation protected securities, rose earlier this month as central banks in Asia and Europe as well as the Federal Reserve took steps to fuel growth and ease financial conditions.
The Fed said it expects to hold borrowing costs steady into 2015 and will buy mortgage debt each month until the labor market improves and growth accelerates. The European Central Bank said it planned a bond-purchase program to fight the region’s debt crisis, while the Bank of Japan (8301) has boosted stimulus and China approved additional infrastructure spending.
The gap in yield between Treasury 10-year notes and similar-maturity Treasury Inflation Protected Securities, known as the break-even rate, narrowed to 2.44 percentage points today after touching 2.73 percentage points on Sept. 17, the most since May 2006. The gap has averaged 2.22 percentage points this year.
Regarding the Fed’s actions, “the benefits of this policy are really toward financial assets and the creation of financial inflation, and not the creation of new economic activity,” Rosenberg said. “The costs are back loaded. Those costs are the potential loss of independence and higher future inflation.’
This is ‘‘why you don’t want to take interest-rate risk if the outcome of this monetary policy is higher inflation,” said Rosenberg.
In Europe, the sovereign debt of Italy is attractive given the high yield and lower risk profile relative to other peripheral nations such as Spain, BlackRock’s Rosenberg said.
Spanish 10-year yields dropped for the first time in three days. Spain’s 10-year bond yield fell five basis points to 6.02 percent. The yield on Italy’s 10-year note declined two basis points to 5.19 percent, according to data compiled by Bloomberg.
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