Greenspan predicts bond market bubble
WASHINGTON — Investors hunting for excess in the stock market might be better off worrying about bond prices, former Federal Reserve chairman Alan Greenspan said in an interview.
That’s where the actual bubble is, he said, and when it pops, it’ll be bad for everyone.
“By any measure, real long-term interest rates are much too low and therefore unsustainable,” Greenspan said. “When they move higher they are likely to move reasonably fast. We are experiencing a bubble, not in stock prices but in bond prices. This is not discounted in the marketplace.”
While the consensus of Wall Street forecasters is still for low rates to persist, Greenspan, 91, isn’t alone in warning they will break higher quickly as the era of global central-bank monetary accommodation ends. Deutsche Bank AG’s Binky Chadha said real Treasury yields sit far below where actual growth levels suggest they should be. Tom Porcelli, chief U.S. economist at RBC Capital Markets, says it’s only a matter of time before inflationary pressures hit the bond market.
“The real problem is that when the bond-market bubble collapses, long-term interest rates will rise,” Greenspan said. “We are moving into a different phase of the economy — to a stagflation not seen since the 1970s. That is not good for asset prices.”