BlackRock and Payden See Value in High Quality Corporate Bonds

Higher corporate bond yields are creating new income opportunities for investors, according to BlackRock and Payden & Rygel, as both asset managers assess the fixed-income market amid interest rate uncertainty and increased borrowing for artificial intelligence infrastructure. Their fourth-quarter 2026 outlooks highlight investment-grade corporate debt as a potential source of returns, while emphasizing credit quality, financing structures and exposure to rising rates.

Rick Rieder, BlackRock's chief investment officer for global fixed income, said investors could theoretically construct a diversified portfolio yielding more than 7%, with duration below three years and average credit quality of A-. Duration measures a bond portfolio's sensitivity to interest rate changes, making shorter-duration holdings less exposed to price fluctuations caused by rate movements.

Rieder described the opportunity in an interview with CNBC about the fourth-quarter outlook.

"Not only is it historic in that these yields are where they are, but the only time these yields are ever here is when there's some problem, like an economic problem or default problem," said Rick Rieder, BlackRock's chief investment officer for global fixed income.

He argued that the current economic environment differs from previous periods when similarly high yields accompanied serious economic or credit problems.

"So you don't really have to worry about defaults of any significance," said Rick Rieder, BlackRock's chief investment officer for global fixed income.

Investment-grade corporate bonds are Rieder's preferred opportunity, an assessment he said he had not made for an extended period.

"in a really long time," said Rick Rieder, BlackRock's chief investment officer for global fixed income.

Large technology companies investing heavily in artificial intelligence infrastructure are among the issuers attracting his attention. According to LSEG data cited by CNBC, Alphabet, Amazon, Meta Platforms and Oracle had issued approximately $228.4 billion in bonds combined through October 20, 2026.

"They're very low leverage. They have tremendous amounts of cash flow coming in," said Rick Rieder, BlackRock's chief investment officer for global fixed income.

He continued describing the appeal of these companies' debt.

"You're now getting to buy these entities which are higher quality, paying you a very attractive yield to get it," said Rick Rieder, BlackRock's chief investment officer for global fixed income.

BlackRock's iShares Flexible Income Active ETF increased its allocation to investment-grade corporate bonds to 14.3%, compared with 8.5% in July. Rieder also cautioned that investors should distinguish established technology companies from other businesses financing data centers and artificial intelligence projects.

"There's parts of the data center supply that's not hyperscaler guaranteed or hyperscaler backed," said Rick Rieder, BlackRock's chief investment officer for global fixed income.

He explained that BlackRock was taking a more cautious approach to those exposures.

"That we've been more cautious around, and we'll continue to be," said Rick Rieder, BlackRock's chief investment officer for global fixed income.

Rieder also advised investors to focus on the income available when they purchase bonds rather than relying on interest rates to decline.

"Your starting point is by far your best barometer of what your return is going to be," said Rick Rieder, BlackRock's chief investment officer for global fixed income.

He noted that yields could rise or fall during the holding period while the initial income level remained an important return component.

"They're not borrowing off the overnight funds rate," said Rick Rieder, BlackRock's chief investment officer for global fixed income.

Rieder said higher borrowing costs were already affecting housing, credit cards and auto loans, while technology companies' capital expenditures continued to support economic growth. He expected the Federal Reserve to raise rates again in December 2026, although he disagreed with that prospective decision.

He also warned that higher rates could increase financing costs for heavily indebted governments.

"The more the central banks raise the rates, the cost of debt to these to already indebted governments is something we've got to be careful about over time," said Rick Rieder, BlackRock's chief investment officer for global fixed income.

The US budget deficit had reached $2 trillion for fiscal 2026, according to the CNBC report. Rieder also identified the growing supply of debt from artificial intelligence infrastructure projects as a potential source of pressure on bond markets.

"With the amount of supply that's coming — data center, hyperscaler — there's some crowding-out effect that's taking place. With government rates moving higher, that is something that we just got to keep an eye on," said Rick Rieder, BlackRock's chief investment officer for global fixed income.

Despite those risks, he described his approach to investment-grade corporate debt as focused on collecting the available income.

"and smile a lot," said Rick Rieder, BlackRock's chief investment officer for global fixed income.

BlackRock's broader quarterly outlook, discussed by James Turner, head of global fixed income for Europe, the Middle East and Africa, also emphasized income from existing yields rather than dependence on falling interest rates.

"For much of the previous decade, falling rates were an important contributor to bond returns," said James Turner, head of global fixed income for Europe, the Middle East and Africa at BlackRock.

He said higher initial yields have changed the composition of potential bond returns.

"Today, higher starting yields mean more of the potential return can come from carry and coupon income rather than relying on further declines in rates," said James Turner, head of global fixed income for Europe, the Middle East and Africa at BlackRock.

BlackRock identified corporate hybrid securities in utilities, telecommunications and energy as additional opportunities because their spreads had narrowed less than those of the broader market. The firm also warned that artificial intelligence exposure requires careful assessment of individual companies and financing arrangements.

"As we enter the fourth quarter, opportunity and discipline need to go hand in hand. Not every company exposed to AI will succeed, and not every structure will adequately compensate investors for its complexity," BlackRock said in its quarterly outlook.

The firm also identified potential opportunities in selected cyclical industries if economic activity stabilizes.

"If activity stabilizes, selected issuers in these sectors could benefit," said James Turner, head of global fixed income for Europe, the Middle East and Africa at BlackRock.

BlackRock said selected B-rated issuers in real estate, financial services and other services could offer value where underlying fundamentals appeared stronger than market prices suggested.

"We also see value in selected B-rated issuers, including in real estate, financials and services, where we believe fundamentals remain stronger than current pricing suggests," said James Turner, head of global fixed income for Europe, the Middle East and Africa at BlackRock.

Rick Rieder also connected the income opportunity to the outlook for inflation and investors' reliance on stocks to generate portfolio returns.

"If inflation continues to move closer to the Fed's 2% target, that income becomes even more meaningful in real terms," said Rick Rieder, chief investment officer of global fixed income at BlackRock.

He said bonds could assume a greater role in generating investment income without eliminating the importance of equities for longer-term growth.

"While equities still matter for long-term growth, investors no longer need them to carry as much of the return burden," said Rick Rieder, chief investment officer of global fixed income at BlackRock.

Separately, Payden & Rygel identified investment-grade corporate bonds yielding above 6% as an attractive entry point following increases in market yields. Natalie Trevithick, the firm's managing director and head of investment-grade corporates, attributed negative corporate bond returns during 2026 primarily to rising interest rates rather than deteriorating corporate credit quality.

"Investors can now obtain yields above 6% in investment-grade credit, levels that were difficult to find even in higher-quality high-yield bonds earlier this year," said Natalie Trevithick, managing director and head of investment-grade corporates at Payden & Rygel.

She emphasized the additional income available to investors allocating new capital.

"For new money, that represents a meaningful opportunity. The incremental spread provides additional carry, while corporate fundamentals remain solid," said Natalie Trevithick, managing director and head of investment-grade corporates at Payden & Rygel.

Payden & Rygel said investment-grade corporate bonds had outperformed comparable-maturity US Treasury securities during the period, highlighting the distinction between price declines caused by interest rates and deterioration in borrowers' ability to repay debt. The firm cited continuing corporate cash flow and resilient consumer spending as supporting factors.

Longer-dated corporate bonds have also attracted institutional demand, with yields approaching 7% on some securities. Limited recent issuance of 30-year corporate debt has helped support that segment, according to Payden & Rygel.

"Long-duration corporates can provide a meaningful income stream for investors with long-term liabilities or a long-term investment horizon," said Natalie Trevithick, managing director and head of investment-grade corporates at Payden & Rygel.

She described demand from institutions for longer maturities.

"We are seeing strong demand for 10- and 30-year bonds, particularly from institutional investors," said Natalie Trevithick, managing director and head of investment-grade corporates at Payden & Rygel.

The firm cautioned that longer maturities remain sensitive to additional increases in Treasury yields, which could further depress market prices. Investors with longer investment horizons or liabilities to match may nevertheless find the income levels relevant to their portfolio requirements.

Artificial intelligence investment presents a separate credit-selection challenge because companies may use corporate bonds, structured debt and other financing arrangements to fund capital expenditures. Payden & Rygel urged investors to examine guarantees, covenant protections, obligations outside balance sheets and the compensation offered for taking on additional risks.

"The question is not simply whether AI-related issuance comes to market, but how it is structured and whether investors are being adequately paid for the risks they are taking," said Natalie Trevithick, managing director and head of investment-grade corporates at Payden & Rygel.

She emphasized that financing arrangements require individual assessment.

"This will be a market that requires evaluating each company and financing structure individually," said Natalie Trevithick, managing director and head of investment-grade corporates at Payden & Rygel.

Both asset managers identified corporate credit quality, starting yields and investment horizons as central considerations as borrowers fund infrastructure projects and investors navigate uncertainty over monetary policy. Their outlooks favor selective exposure to corporate debt while recognizing that higher yields do not eliminate the possibility of further price declines.