soon after march’s sudden bank failures startled markets april kicked off with surprise oilproduction cuts that left investors worried about potential ripple effects on still high inflation rick rieder blackrock’s chief investment officer of global fixed income and head of the firm’s global allocation investment team said in a phone interview that when he saw news of the unexpected oilproduction cuts by opec his first thought was “here’s another log on the fire” when it’s already “so hard” to bring down inflation crude prices cl00 cl1 in the us jumped monday after opec a group of oilproducing countries including saudi arabia surprised markets by announcing on sunday plans to reduce production by more than one million barrels a day beginning in may until the end of 2023 read 6 things investors need to know about the surprise opec production cuts rieder worried that’s “inflationary” in the near term with the potential to lead to higher prices for consumers at the gas pump and a pullback in their spending elsewhere in the economy in his view the announcement also seemed “counterintuitive” considering china’s been reopening its economy which should translate into growth in energy demand the federal reserve has been raising interest rates in an effort to bring high inflation under control but after last month’s sudden collapse of silicon valley bank and signature bank the bond market began adjusting for potential rate cuts even as the cost of living remains elevated treasury yields dropped as investors feared the fed’s aggressive monetary policy was creating cracks in the financial system and that the banking stress increased the probability of recession read twoyear treasury yields see biggest monthly drop since 2008 after bank turmoil rieder expects “sticky inflation” potentially exacerbated by higher oil prices means the fed may continue to “talk tough on inflation” he thinks the fed may pause its rate hikes “at a restrictive level” after doing one more at its next policy meeting which is scheduled for early may fedfunds futures on tuesday afternoon pointed to a 443 chance of the central bank raising its benchmark rate by a quarter percentage point to a target range of 5 to 525 in may and 557 odds of the fed pausing according to the cme fedwatch tool at last check traders are also pricing in potential rate cuts later this year while rieder’s base case isn’t for rate cuts in 2023 he sees some risk of a credit contraction alongside banking issues becoming “acute” in the us “i think we’re going into a period where the economy is going to slow he said against this backdrop “i think they’re going to cut rates in 2024” with a chance the fed could begin doing so in december said rieder in his view once the fed does begin cutting rates it probably won’t be in a “smooth line” of decreases of a quarter percentage point at a time “they’re going to drop them very quickly” he expects saying that’s what he’s seen being priced into the market after the “mini banking crisis” read what ‘unprecedented’ volatility in the 24 trillion treasury bond market looks like the yield on the twoyear treasury note sank 735 basis points in march to 4060 for its biggest monthly decline since january 2008 based on 3 pm eastern time levels according to dow jones market data the 2year treasury yield tmubmusd02y fell tuesday to 3831 the recent drop in treasury yields makes sense to some extent based on the potential for banking issues to possibly shave off between a quarter and three quarters of a percent from gross domestic product according to rieder rieder said he likes the front end of the treasury market’s yield curve and shortterm debt such as commercial paper which he’s seen yielding around 5 to 6 “i quite frankly like buying commercial paper and tbills” he said “in today’s environment you’re getting paid to be patient” rieder said of the “attractive” income from shortterm debt in an economic slowdown he questioned how fixedincome yields might stack up against equity returns in 2023 the yield on the threemonth treasury bill tmubmusd03m was trading around 48 tuesday afternoon factset data show at last check that’s above the yield for the 10year treasury note tmubmusd10y  which ended tuesday at 3335 tuesday according to dow jones market data rieder saw the 10year note as “not that interesting” through 35 but he said slightly above that level was “reasonable” and that “if the economy slows it’s going to work as a hedge for you” that’s why he’s using a “barbell” approach saying “i like the very short end” of the yield curve but also some exposure “at the 10year point” in us corporate credit markets rieder said he prefers investmentgrade bonds over highyield or junk bonds he said that a flight to higher quality within highyield debt left spreads on bbrated bonds looking “mediocre” also within fixed income rieder said he’s seen buying opportunities in some emergingmarket sovereign debt rieder described his exposure to commercial real estate debt as “light” relative to the past saying “i feel a lot more comfortable” with credit while offices have been under pressure he said other areas of commercial real estate such as multifamily properties and hotels have looked more attractive from a financing perspective also see commercial mortgages are a big 31 trillion share of bank holdings goldman sachs as for equities rieder said he likes parts of areas such as technology healthcare and defense as well as “quality growers that are less cyclical” including some consumerstaples stocks and he said the recent stress around credit suisse group created buying opportunities in european bank stocks at “a fraction of book value” meanwhile the us stock market closed lower tuesday with the dow jones industrial average djia and sp 500 spx each falling 06 while the nasdaq composite comp slid 05 according to factset data stocks rose last month despite the regional bank failures with the techheavy nasdaq booking its best quarter since the second quarter of 2020 in the coming months the market faces worries beyond rate hikes and the recent bank failures “i would be blown away if the debt ceiling didn’t become an issue of significant concern over the next few months given the way the politics seem to be shaping up” said rieder