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By Richard Leong and Jennifer Ablan
NEW YORK, Sept 18 (Reuters) - The U.S. Federal Reserve's decision not to raise interest rates on Thursday is giving investors a green light to buy bonds on the view that the central bank won't move for some time.
Some of the biggest bond firms won bets that short-to-medium dated U.S. Treasuries and investment-grade corporate bonds would gain if the Fed backed away from its already lukewarm stance to hike interest rates by year-end.
Rick Rieder, chief investment officer of global fixed income at BlackRock, the world's biggest asset manager with $4.7 trillion in assets under management, told Reuters: "I had thought that investment-grade credit had very limited value for the past few years, but some of these spread levels are very attractive right now."
He said he is buying investment-grade corporate credit, particularly in the industrial sector, which is generating increased supply.
With risk premiums on investment-grade corporate bonds - the difference between yields on those bonds and comparable government debt - hovering near their highest in three-and-a-half years, Rieder and other top bond managers expect that spread to narrow in a low-rate and low-inflation climate, enhancing their overall returns.
European bonds are also worth a look, Rieder said.
The Fed's wary global view due to troubles in China and emerging markets might cause the European Central Bank to step up its stimulus in a bid to protect the euro zone economy, strategists said.
Some, such as Doubleline Capital's Jeffrey Gundlach, have been buying U.S. Treasuries, favoring five-year notes, saying "There is not enough global growth to go around and the Fed realizes it."
Gundlach was referring to China's devaluation of its currency in August amid signs that the country's economy - the world's second-largest - is slowing down.
Fed Chairwoman Janet Yellen said Thursday at a press conference following a two-day policy meeting: "Developments that we saw in financial markets in August, in part, reflected concerns that there was downside risk to Chinese economic performance and perhaps concerns about the deftness in which policy makers were addressing those concerns."
Other bond managers including John Bellows at Pasadena, California-based Western Asset Management, which has $453 billion in assets, said he anticipates bigger profits by owning more longer-dated Treasuries, rather than shorter-dated issues, given the tame inflation environment and the likelihood the Fed will eventually raise short-term rates, even if it doesn't happen this year.