Tags: Shiller | bonds | bubble | collapse

Yale's Shiller: Bonds 'May Have Gone Through Bubble, May Collapse'

By    |   Friday, 13 February 2015 07:57 AM


Just as he has warned of froth in the stock and housing markets, Nobel laureate economist Robert Shiller sees signs of trouble in the bond market too.

In the new edition of his 2000 book "Irrational Exuberance," due out later this month, the Yale professor writes, "The U.S. bond market, showing such low yields, looks as it if may have gone through something of a bubble and may collapse further, eventually," according to CNBC.

Massive global central bank easing has helped depress yields. But, "the story is longer and deeper than that. It's not just central banks," Shiller told CNBC. "It's something about our investment opportunities and our fears and our culture. So it's a very deep phenomenon."

It probably won't last, given that long-term bond yields already are close to zero in many countries, he said. The 10-year German government bond yields 0.32 percent, and 10-year Japanese government bonds yield 0.39 percent.

"We can't go below zero," Shiller notes. "I think it's a risky time to be investing in long-term fixed income."

But Shiller doesn't envision a crash soon. "There could be a major turning point in coming years, but I see no reason to think that it's imminent."

Steven Goldberg, an investment adviser in the Washington, D.C. area, also is concerned about bonds. "Bond prices have reached absurd heights," he writes in Kiplinger.

"I’ve been wrongly predicting that yields would rise for years, so I can’t tell when this madness will end."

But beware, he says. A one percentage-point rise in the yield of 10-year Treasurys would shove their price down 9 percent. And a two-percentage-point increase would double the damage.

So what should investors do?

"Stick to bond funds with relatively short average maturities," Goldberg writes. "If you’re willing to take some risk, buy funds that invest in some lower-quality corporate bonds."


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Just as he has warned of froth in the stock and housing markets, Nobel laureate economist Robert Shiller sees signs of trouble in the bond market too.
Shiller, bonds, bubble, collapse
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2015-57-13
Friday, 13 February 2015 07:57 AM
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