Rick Rieder Predicts Rate Rise in June and Today’s Other Top Stories

Rick Rieder, BlackRock Inc’s chief investment officer for fixed income, predicted Monday that the Federal Reserve will raise U.S. interest rates in June.

And as long as the Fed does raise rates at a slow pace, Rieder believes that U.S. equities will “go significantly higher.”

“I think the equity market will confound people for the next year or so,” said Rieder, speaking at the 2014 Reuters Global Investment Outlook Summit in New York. Particularly with the cost of financing so attractive, more cash will come into equities and that increases the upside potential, he said.

Rieder said he believes the Fed should increase rates sooner than June because a 1 percent fed funds rate would help normalize savings conditions and let people retire who are not retiring today.

Rieder’s big concern about the economy: high levels of student loan debt will curtail young Americans’ ability to take out mortgages to buy homes.

The number of U.S. consumers with student loans has jumped 350 percent from 2003 to 2013, and at the same time that of 27-year-old to 30-year-old borrowers with mortgage debt and student loans has dropped from 31 percent to less than 22 percent, Rieder said.

“Student loans are the most underestimated dilemma facing the country today,” Rieder said. “If you go to college, you can’t get a mortgage.”

Rieders view puts him at odds with Pascal Blanque, Chief Investment Officer at the $1.2 trillion Amundi Asset Management, one of Europe’s biggest investors. Who sees a low probability of the Fed making its first rate rise in 9 years in 2015 – despite consensus forecasts of a mid-year hike.


Todays Other Top Stories

Learn Bonds

Learn Bonds: – U.S. economic data for this week. – A closer look at this weeks data and what it means to investors.


Municipal Bonds

Epoch Times: – Can muni bonds sustain recent gains? – One of the least glamorous investments has been on a tear this year. Year-to-date returns on municipal bonds, or debts issued by state or local governments to finance capital expenditures, have exceeded expectations in 2014 after taking a beating last year. Muni bonds have posted their longest string of consecutive monthly gains in more than 20 years.

Bloomberg: – Muni bond brokers to reveal same-day markups under proposal. – Municipal bond brokers would be required for the first time to disclose how much they mark up the price on securities sold to individual investors under a proposed rule.

Bloomberg: – Munis facing first losses of 2014 as record win streak imperiled. – The $3.7 trillion municipal market is on pace for its first monthly loss of 2014 and trailing gains in Treasuries amid a glut of issuance by states and localities.

MMA: – A breakdown of what Detroit really means. – Detroit, Michigan officially exited Chapter 9 protection—ending the largest U.S. municipal bankruptcy in history. The Plan of Adjustment (POA) accepted by the bankruptcy judge has a variety of conclusions that are uniformly negative for the industry and for issuers in particular.

ETF Trends: – Muni ETFs look cheap compared to Treasuries. – After its first monthly decline of the year, the municipal bonds market and related exchange traded funds are now trading at their cheapest relative to Treasuries in nine months.


Bond Market

Bloomberg: – Bond pain seen ending for bears in poll saying they’re right. – After the legions of market savants missed out on hundreds of billions of dollars in gains this year anticipating a tumble in bonds, you’d think they would have found another target. You’d be wrong.

Bloomberg: – Draghi says ECB measures might entail buying government bonds. – European Central Bank President Mario Draghi explicitly cited government-bond buying as a policy tool officials could use to stimulate the economy if the outlook worsens.

ETF.com: – Schiff: Prepare for major Fed reversal in 2015. – Peter Schiff is CEO and chief investment officer of Euro Pacific Capital, a full-service broker-dealer providing mutual funds and separately managed accounts. He is a firm follower of the Austrian School of economics and a regular critic of the Federal Reserve’s policies. Schiff has authored several books, including “Crash Proof” and “Crash Proof 2.0,” both New York Times best-sellers, and “The Real Crash.” He is a regular on CNBC, hosts The Peter Schiff Show on radio and is often quoted in the financial media.


Treasury Bonds

Bloomberg: – Flash boys raising volatility in wild new Treasury market. – In a flash, the bond market went wild. What began on Oct. 15 as another day in the U.S. Treasury market suddenly turned into the biggest yield fluctuations in a quarter century, leaving investors worrying there will be turbulence ahead.


High Yield Bonds

Sovereign Investor: – Junk bonds: The overlooked investment for high yield. – Even with the promise of the Fed raising interest rates soon, high yield can be tricky to find in the U.S. market. Of course, timing is bad right now for municipal bonds. Prices are poised to fall, creating an opportunity for you to jump in … but just not right now.

IFR: – Equinix leads way in US$2.45bn high-yield session. – The US high-yield primary market had a busy session Monday, with Equinix leading three issuers to raise US$2.45bn to start the last full week of November before the Thanksgiving holiday.

Reuters: – Hedge fund star Hintze tips long U.S. high yield credit, short Europe. – Hedge fund CQS is betting on U.S. high-yield corporate bonds following the return of widening credit spreads and volatility in the second half of the year, the firm’s founder Michael Hintze, one of Europe’s most influential investors, said on Monday.


Emerging Markets

Bloomberg: – Venezuela’s bond plummet can’t sway BofA as losses mount. – Being bullish on Venezuela’s bonds hasn’t quite panned out for Bank of America Corp. and Barclays Plc. Still, neither are prepared to give up their calls.

ETF.com: – Daily ETF watch: China bond fund nears. Global X, the New York-based ETF sponsor known for a variety of niche strategies, this week plans to launch a bond fund focused on mainland Chinese fixed-income securities, though in the initial stages, some of the exposure may be obtained indirectly via swaps. It’s only the second such ETF on the U.S. market.

Reuters: – High returns keep DoubleLine’s Padilla in EM corporates. – Emerging market debt will be a safer bet than equities in those developing countries, said DoubleLine Capital’s director of emerging markets fixed income Luz Padilla.


Investment Strategy

Across the curve: – How many 10 year notes do you need? – If Kocherlakota were a client and I were still hawking bonds for a living if I had heard this bullish peroration on the phone I would  have immediately asked him how many 10 year notes he wanted me to offer him. He thinks that it will be inappropriate to hike rates in 2015 and he does not believe that inflation will return to 2 percent until 2018.

About.com: – Financial Stocks: A Hedge against rising long-term bond yields. – Given the concerns about the potential for rising bond yields in the years ahead, many investors are looking for a way to “hedge” – or offset – the impact this development would have on their portfolios. One way to accomplish this is by investing in financial stocks, which tend to benefit from rising long-term bond yields.


Bond Funds

Bloomberg: – Hedge funds bet against Fed’s rate plan in contrarian bond trade. – It paid off to be a contrarian bond investor heading into 2014. Hedge funds have taken note. So, as mutual-fund managers show confidence in the Federal Reserve’s plan to raise benchmark rates next year, hedge funds are taking the opposite position. They’re poised to win in a more pessimistic scenario, where a weak economy causes central bankers to maintain their easy-money policies for longer, according to data compiled by Citigroup Inc.


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