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BlackRock’s Rick Rieder sees ‘epic’ cash on sidelines as he takes lead role on new ETF

There’s an “epic” amount of cash on the sidelines as investors assess a slowing U.S. economy and the debt-ceiling debate in Washington, according to Rick Rieder, chief investment officer of global fixed income at BlackRock.

“I’ve never seen so much money sitting in cash,” Rieder said Tuesday during a BlackRock media briefing at its New York office on markets and the firm’s new, actively managed exchange-traded funds.

Related: A debt-ceiling deal will spark a new worry: Who will buy the deluge of Treasury bills?

Rieder is the lead portfolio manager of the new BlackRock Flexible Income ETF
the first active ETF managed by Rieder, according to a BlackRock statement on Tuesday.

Rieder said during the briefing that he sees a “very high probability” that a debt-ceiling deal gets done ahead of a looming deadline for Congress to lift it or leave the U.S. facing the possibility of soon running out of cash to pay all its bills. Market disruption from the U.S. defaulting on its debt would be “significant,” as Treasury bills are used as “collateral” globally, he said.

Read: Debt-ceiling angst sends Treasury bill yields toward 6%

As portfolio manager of the BlackRock Flexible Income ETF, Rieder said he’s targeting a yield of “just under 7%.” The rise in interest rates over the past year has made it possible to target such a yield in debt markets with less risk-taking than would have been needed at the end of 2021, according to Rieder. 

He plans to invest opportunistically, including in areas harder for many investors to reach in “complex” fixed-income markets, such as exposures to mortgages and collateralized loan obligations. 

In his view, the U.S. economy is in “better shape” than many people give it credit for at this stage in the cycle. While growth is slowing, Rieder said he doesn’t see a “deep recession” impending, citing a low unemployment rate, wage growth and excess savings in the economy. 

He anticipates the Federal Reserve may pause its rate hikes at its next policy meeting, as inflation has been easing even if it remains “sticky” in core services. The Fed has aggressively raised rates over the past year in a bid to bring down high inflation. “I think we’re reaching the end of the process,” said Rieder. 

Meanwhile, BlackRock has expanded its active ETF lineup in equities, as well, announcing on Tuesday that Tony DeSpirito is the lead portfolio manager for its new BlackRock Large Cap Value ETF

Active ETFs are one of the fastest-growing areas of the exchange-traded fund market, said Rachel Aguirre, head of U.S. iShares Product at BlackRock, at the media briefing Tuesday. It’s still “early innings,” she said.

The U.S. stock market closed lower Tuesday amid debt-ceiling worries. The Dow Jones Industrial Average
fell 0.7%, while the S&P 500
dropped 1.1% and the technology-heavy Nasdaq Composite
slumped 1.3%, according to FactSet data.

In the bond market, the yield on the 10-year Treasury note
fell 2.1 two basis points to 3.696% on Tuesday, while 2-year Treasury yields
rose 1.5 basis points to 4.333%, according to Dow Jones Market Data.

Treasury Secretary Janet Yellen expects the so-called “X-date,” when the U.S. risks breaching its debt ceiling and running out of cash, to arrive as soon as June 1. 

Read: ‘Doomsday machine’: Here’s what could happen if the debt ceiling is breached

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