There’s plenty of income to be found these days in the bond market, but longer-dated corporate bonds not only deliver solid yields — they are also a bargain, according to Rick Rieder, BlackRock’s chief investment officer for global fixed income. Rieder recently began adding longer-dated corporates to his iShares Flexible Income Active ETF (BINC), which has $7.69 billion in assets and a 30-day SEC yield of 5.57%. It has a net expense ratio of 0.4%. Overall, spreads have been tight on investment-grade corporates, making them expensive. Spreads measure the difference in yield between Treasurys and other fixed income assets of the same maturity. That’s not necessarily the case when looking farther out on the curve, say, to around 20 to 40 years. “They trade at 60, 70, 80 cents on the dollar,” Rieder said in an interview with CNBC. “That’s a good asset. Investment-grade companies don’t default.” He’s also locking in yields at around 5% to 6%. BINC 1Y mountain iShares Flexible Income Active ETF over the past year. The longer-dated corporates have been knocked down because they are more sensitive to interest rates. With the January consumer price index reading coming in higher than expected Wednesday, Federal Reserve Chair Jerome Powell testified before Congress that the central bank is ” not quite there yet ” in lowering inflation to its 2% target. The Fed left interest rates unchanged at its January meeting, and the market is expecting no change at its March meeting either, according to the CME FedWatch Tool . Meanwhile, the supply of bonds is relatively limited for the longer-dated assets, although there is still some demand, Rieder pointed out. “Companies would rather issue shorter on the yield curve, as opposed to paying up. And pensions, life insurance companies need long bonds,” he said. Some of BINC’s longer-dated investment-grade holdings include bonds from Amazon and Apple , according to the fund’s website . The ‘sweet spot’ Still, longer-dated investment-grade corporates still make up only a small portion of Rieder’s fund and, overall, investment-grade debt comprises 12.6% of the fund. Only 3.6% of that is in U.S. credit. Instead, the ETF leans into what Rieder calls good quality assets in Europe and the U.S. that don’t take a lot of long-term interest rate risk. “Good [quality], but not great,” he stressed. “Great trades too rich.” BINC focuses largely on debt with maturity of 0 to 5 years, with Rieder calling two and three years the “sweet spot.” High yield bonds and loans comprise nearly 41% of BINC, with about 18% in European and British assets and 23% in U.S. assets. Rieder likes BB-rated high yield in the former and B-rated in the latter. Europe’s economy is going to grow slow enough that the European Central bank can be accommodative, he said. Its high-yield market is small and the companies have good credit quality, he added. The second-largest allocation is in securitized products at just under 37%. Collateralized loan obligations make up 11%, commercial mortgage-backed securities sit at 10%, non-agency MBS comprise about 10% and asset-backed securities make up 5.5%. “[The CLO] market just hasn’t developed enough that you’re still able to buy even triple As at still very attractive levels,” Rieder said. Meanwhile, the CMBS market has been dragged down by concerns about office real estate, he said. “The truth is, things like lodging, class A office that’s fully leased up is attractive,” Rieder said. “You’re getting paid for taking a little bit of risk in an area where people feel like there was some pressure.”
BlackRock’s Rieder thinks one corner of the bond market is too cheap