Greenspan pre­dicts bond mar­ket bub­ble

Northwest Arkansas Democrat-Gazette - - BUSINESS & FARM - — Bloomberg News

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.”

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