Tags: Shiller | bond | market | crash

Shiller: Bond Market Doesn't Seem Headed for Crash

By    |   Tuesday, 17 March 2015 09:00 AM

With the 30-year Treasury yield having hit a record low of 2.25 percent in January, and the 10-year Treasury yield standing less than 1 percentage point from its all-time nadir, some experts have speculated that a bond crash is coming.
 
But the research of Nobel laureate economist Robert Shiller "encourages the belief that we will not see a crash in the bond market unless central banks tighten monetary policy very sharply (by hiking short-term interest rates) or there is a major spike in inflation," he writes in an article for Project Syndicate.
 
"Bond-market crashes have actually been relatively rare and mild."
 
And what about stocks and housing? If history is any guide, "there may well be a major downward correction someday, but it probably will have little to do with a bond market crash," Shiller says.
 
"It is true that extraordinarily low long-term bond yields put us outside the range of historical experience. But so would a scenario in which a sudden bond market crash drags down prices of stocks and housing," he explains
 
"When an event has never occurred, it cannot be predicted with any semblance of confidence."
The S&P 500 index stands less than 2 percent from its record high, and the S&P/Case-Shiller home price index for 20 cities rose 4.5 percent last year.
 
Meanwhile, Bill Blain, senior fixed income strategist at Mint Partners, a unit of BGC Partners, says global signs of stronger-than-expected growth is bad news for bonds.
 
"As a bond man, I've got to say get out of bonds and into stocks, and believe me that was a painful thing to say," he tells CNBC.
 
Blain expects growth to heat up in Europe, the United States and China. "We're going to see a global GDP surprise." That's when stocks really rise, Blain notes.
 
The U.S. economy grew 2.4 percent last year, and many analysts expect an expansion of about 3 percent this year. The U.S. 10-year Treasury yield already has rebounded to 2.08 percent from a 20-month low of 1.65 percent in February.

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With the 30-year Treasury yield having hit a record low of 2.25 percent in January, and the 10-year Treasury yield standing less than 1 percentage point from its all-time nadir, some experts have speculated that a bond crash is coming.
Shiller, bond, market, crash
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2015-00-17
Tuesday, 17 March 2015 09:00 AM
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