Now is not the time to turn into a bond vigilante, as betting against the U.S. government raising its debt ceiling could be "very dangerous," a top bond fund manager at BlackRock said Monday.
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BlackRock fund manager: Don't bet against the U.S. raising its debt ceiling. |
The Treasury Department said the nation had hit its $14.294 trillion debt limit on Monday. It previously estimated it could stave off a default until Aug. 2 by drawing on other sources of money to pay its bills.
Only if there appeared to be no hope of a debt-ceiling deal when August approached would it make sense for markets to show signs of worry, said Rick Rieder, who oversees $595 billion of the firm's $1.15 trillion in fixed income assets.
"The view is that you will ultimately get resolution and for market vigilantes to come in, in front of that is I think very hard and very dangerous," he said in an interview with Reuters on Monday.
Key Points
—Yields likely to rise modestly, debt will stay in demand
—QE3 very unlikely, would not help reduce unemployment
In fact, there's actually a good case to be made for buying U.S. government debt, even though a recent rally has pushed the market to pricey levels.
Financial markets are likely to enter a phase of greater volatility when the Federal Reserve pulls the plug on its $600 billion bond-buying program next month. The sudden loss of support will place a premium on supposedly risk-free assets, which usually means U.S. Treasurys and similarly highly rated government bonds.
"I think there are a number of reasons why they will hold in better than people expectout of volatility comes a bid for Treasurys" he said.
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