Rieder, who was on visit to Hong Kong and China last week, said ten years ago there was a $4-$5trn net supply of fixed income each year. This year, the net supply will be $700bn, 15% of what was available a decade ago.
“At the same time there is a huge aging population that needs more income. There are not enough assets at a time of epic demand.
“People underestimate demographics. We’re going through the fastest aging of the global population we’ve ever seen before.
“As people approach retirement, we’ve never seen a greater demand for income, particularly long-dated assets. Demographics may be the biggest influencer in what’s driving markets now.”
Moreover, when the population ages so fast so quickly, global growth stays slower and interest rates remain lower than historical norms, said Rieder.
He also cited a general disinflationary trend that has a big impact on investment and is driven by factors such as technology innovation.
“In the past, railroads or cars, TV or radio were largely growth drivers. Technology today is largely driven to reduce the cost of doing things we already do.”
As examples, he cited competition among retailers. “It used to be regional competition, but now Amazon and other online retailers have to compete with the lowest cost in the world. It’s hugely disinflationary.”
Products such as smartphones also consolidate multiple components into a lower cost package. By his calculation, the iPhone cost $650 and with all the integrated functions it replaces $2400 worth of products.
Moreover, online services such as Airbnb and Uber bring unused capacity online, pushing down prices.
“Because of the tremendous disinflationary dynamic, the traditional economic trend that says growth leads to inflation doesn’t work. Monetary policy cannot create inflation anymore.”
Rieder runs an unconstrained fixed income fund aimed at a 4-6% return. He said the unconstrained fixed income investment strategy has become hugely popular, echoing comments from Legg Mason’s investment director Amanda Stitt.
“The world is not delivering enough opportunities, so unconstrained opens your tool kit,” Rieder said. “The size of global debt markets is $56trn. You can expand your tool kit to think about different markets and opportunities.”
