E Blackrock, Cap On Yields Because Of Monumental Bond Demand

Business Insider, primarily because of Jonathan Garber, is actively engaged in bond tantrums from time to time. This is my opinion only, but  I think there are statements in Garber's interview with Blackrock's Global Fixed Income Investment Guru, Rick Rieder, that illustrate my view.

 In the long titled article, The Bond Chief at 5 Trillion Investment Behemoth Blackrock Told Us the Most Dangerous Place to Put Your Money, Rieder essentially makes two opposite predictions in the same interview. 

At the end of the article, the bond king makes a statement that runs along the traditional belief, that:

In this environment, small moves in yields result in big price adjustments in long-dated fixed income, potentially resulting in significant losses in investors’ portfolios. For this reason, we have a much higher conviction in holding short/intermediate maturity rates over the coming quarters, as the longer end of the curve is likely to back up to levels more reflective of fundamentals. [Emphasis Mine]

This is often what you hear from financial advisers. It is classic stuff. Certainly, as inflation increases, bond yields tend to rise. But, this is not an ordinary interview. It is a dual track interview. It is almost if Rieder is speaking to two different audiences, and is speaking in code. For prior to the standard prediction, he makes an astounding statement, confirming what I have believed all along. Rieder said:

Rates may have a bit more room to run higher, but there’s a ceiling to that based upon the monumental demand for yield. [Emphasis Mine]

Got that? There is a ceiling to a rise in rates because there is a monumental demand for yield. This second quote from the Business Insider article is simply the opposite prediction of the first quote. Garber did not challenge the contradiction. 

I have put it otherwise in discussing this issue that so many people do not factor into investing and into economic theories. I have said many times, from studying somewhat obscure postings that there is a monumental demand for bonds. This is even more monumental than simply a demand for yield! Demand for yield is massive, but bonds are the new gold and demand for bonds is explosive even at low yields and sometimes at negative yields. Blackrock first showed us this demand in an article I shared here at TalkMarkets.  

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Disclosure: I am not an investment counselor nor am I an attorney so my views are not to be considered investment advice.

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