U.S. Debt Is ‘Crazy-Priced’ Expensive, BlackRock Says

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  • BlackRock favors emerging markets given ‘tremendous yield’
  • Rates in Europe, Japan and U.S. on expensive side, Rieder Says
BlackRock's Rieder Says U.S. Debt 'Crazy-Priced' Wrong

Government bonds in the U.S., Europe and Japan have become expensive relative to emerging markets, according to BlackRock Inc.

In nations such as Brazil and Argentina, where benchmark rates are higher than 7 percent, "you’re actually getting paid, where real rates in the developed markets in Europe, Japan and the U.S. are crazy-priced wrong to the expensive side,” Rick Rieder, the global chief investment officer for fixed-income at the world’s largest money manager, said Friday on Bloomberg TV. "We think emerging markets are mispriced to the cheap side today.”

Rieder said developing nations have become better prepared to handle liquidity situations in the past two decades, while industrialized countries have seen debt burdens expand.

Emerging-market currencies and stocks are heading toward their best annual gain since 2009, while the return on sovereign dollar bonds lags 2016. Although Wall Street veterans from Jeff Gundlach to Ray Dalio have warned risky assets are overvalued, some of the world’s largest money managers say there are still reasons to remain bullish as the outlook for growth remains benign and major central banks are expected to gradually unwind stimulus.

The growth gap between emerging and developed markets is expected to widen in the next few years, according to a Bloomberg survey. Emerging-market gross domestic product will probably expand to 5 percent by 2019 from 4.5 percent this year, while expansion in developed economies is expected to slow to 1.9 percent from 2.2 percent during the same period.

An index of emerging-market currencies to declined the most in a month on Friday after the U.S. released an unexpectedly strong ISM survey at a time markets were still digesting Venezuela’s plan to restructure its debt.

The ISM data "pushed the global value of the dollar higher and boosted treasury yields," said Marcin Lipka, a senior analyst at Cinkciarz Pl in Poland, who has been one of the most accurate forecasters of the lira and Mexican peso this year. The move "has consequences for the whole EM basket."

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