Tags: Ross | Treasury | Bond | Bubble

Wilbur Ross: Treasury Bond Market is Bubble About to Pop

Wednesday, 21 March 2012 11:10 AM

Yields are rising on 10-Year Treasury bonds, a sign the economy is set to grow and investors will ditch government debt in search of assets that perform better in times of rising growth and inflation rates, says noted investor Wilbur Ross.

Yields rise when bond prices fall.

"I rather be in equities than in 10-year Treasurys. The greatest bubble that's about to burst is the 10-year and longer Treasurys," he told CNBC.

"Because the idea that inflation is gone forever and for all time — and therefore these artificially low rates can last — is silly," Ross said.

Editor's Note: Wall Street Whistleblower Warns of Meltdown, See His Uncensored Interview

The U.S. Federal Reserve has kept benchmark interest rates near zero and adds economic conditions meriting such low lending rates will stick around likely through the end of 2014.

The Fed has embarked on several rounds of asset purchases from banks, snapping up Treasurys and mortgage-backed securities and pumping trillions of dollars into the economy to kick-start more activity.

Meanwhile, the White House has rolled out stimulus spending programs to jolt the economy as well.

Eventually, the economy will grow and consumer prices will rise, especially on a rising tide of debt and liquidity made real by the Federal Reserve and the White House.

Debt druggies

Today, at the cusp of recovery, credit still remains somewhat tight, as the banking system recovers from fallout of lenient lending terms that sent the housing market soaring and later crashing.

"I think credit got too lenient, and there's no question that was true not just in terms of subprime mortgages but in terms of loans in general," says Ross, chairman and CEO of WL Ross and Co.

"We became debt druggies as a society. I think the private-sector has now gotten away from that and you're seeing reduction in consumer borrowing. You've seen a little bit increase in savings rate. Now it's time to get government off being a debt druggie as well."

Demand for loans isn't as strong as it was just before the crisis.

While the economy is growing, it is far from being fully recovered.

"There isn't as much demand because while unemployment has gone down a little, the economy isn't that strong — 1.5-2 percent growth is not exactly shooting the lights out."

The yield on the 10-year Treasury climbed to its highest levels since October of last year.

Yields have remained low up until the March 13 Federal Open Market Committee, when the Federal Reserve made no mention of any need for fresh stimulus measures to juice the economy.

"People are starting to hedge against the idea that we could be looking at much higher rates," says Rick Klingman, a Treasury trader at BNP Paribas in New York, according to Reuters.

"The selling is coming not only in the seven- to 10-year part, but also in the three- to five-year part. There are some real adjusting thoughts going on for how long the Fed will be on hold."

Other market watchers agree that Treasury bonds remain mired in uncertainty.

"People are just not sure where the yields are going to settle," says Boris Rjavinski, U.S. rates derivatives strategist at UBS Securities in Stamford, Conn., Reuters adds.

"For people to go in and really start buying Treasurys right now would be like catching a falling knife."

Editor's Note: Wall Street Whistleblower Warns of Meltdown, See His Uncensored Interview

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