(Yahoo!Finance) - Bond and stock investors need to be on the lookout for the ballooning US deficit, says BlackRock's (BLK) chief investment officer of global fixed income Rick Rieder.
"At the end of the day, I think the debt, the size of the debt in the country is the most significant issue we have to watch for everything we do, certainly in fixed income, but I would argue for other asset classes," Rieder said on Yahoo Finance's Opening Bid podcast (see video above; listen below).
Rieder is one of the top minds in the bond market. He manages $2.7 trillion in assets at BlackRock and was inducted into the Fixed Income Hall of Fame in 2013.
"We're rolling too much debt," Rieder added, noting the new spending bill will only make the matter worse. "Like we roll $573 billion a week of debt. That's like rolling [the total debt of] Australia every single week."
The bond market has been in sharper focus ahead of the summer months.
On May 16, Moody’s downgraded the US credit rating to AA1 from its longstanding position of AAA. On May 22, the House passed the Trump administration’s reconciliation package, which included tax cuts and a $4 trillion lift to the debt ceiling.
Tesla (TSLA) CEO Elon Musk has clapped back at the president's signature tax bill.
"I’m sorry, but I just can’t stand it anymore," Musk wrote on X this week. "This massive, outrageous, pork-filled Congressional spending bill is a disgusting abomination. Shame on those who voted for it: you know you did wrong. You know it."
The yield on the 10-year Treasury (^TNX) has continued to climb amid fears of an out-of-control debt position for the US. The yield now stands around 4.45% — up sharply from 4% on April 4. The advance could increase the cost of borrowing for businesses and households further, stunting the US economy.
Former top Biden administration economist Ben Harris said on Opening Bid that if interest rates climb toward 5% or higher on the 10-year, investors may buy more Treasurys instead of other assets. This will create a drag on the overall economy, which Harris said is "guaranteed" if the US takes on another $4 trillion or more in debt.
“The real threat is that this could spark some sort of fiscal crisis,” Harris said.
Goldman Sachs (GS) chief US strategist David Kostin said this week that bond yields remaining at current levels will likely "constrain the magnitude" of potential S&P 500 (^GSPC) valuation expansion. Kostin's work shows that a 100 basis point change in real Treasury yields is associated with a roughly 7% change in the forward price-to-earnings multiple of the S&P 500.
By Brian Sozzi · Executive Editor
