Tags: FDIC | Bair | Bond | Bubble | Now

FDIC's Bair: There's A 'Bit of a Bond Bubble Now'

Tuesday, 05 Oct 2010 11:14 AM

Federal Deposit Insurance Corp. Chairwoman Sheila Bair warns that there is a bubble in bonds.

Given that there has been a very long period of low interest rates and high liquidity in the system means "a lot of money" will seek investments that are perceived to be safe, Bair told CNBC.

"Longer term, I do worry about interest-rate risk and the ramifications of this very long, protracted period of very low interest rates," Bair said. "And so that combination, I think, can put upward pressure on bond prices," Bair added.

"Eventually they're going to start going up, and what happens? A bit of a bond bubble now, it appears, and so how do we deal with that?"

Bair says she thinks the problem is a long-term one, but also that “at least in terms of Treasury securities, it is something that the Congress and the administration need to be very aware of, as well.”

She thinks "things are fine now, but if we don't get our fiscal house in order and have some clear plan for greater and more responsible budgetary management, I think it could become a problem later," she says.

Bair says “smaller banks seem to be keeping the loan balances up a little better than the larger institutions," but that U.S. banks are in "pretty good shape" and can "easily" raise capital to the new requirement set under Basel III.

According to thestreet.com, several major banks have said they will halt foreclosure proceedings due to a raft of litigation from homeowners and investors and pressure from regulators.

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Federal Deposit Insurance Corp. Chairwoman Sheila Bair warns that there is a bubble in bonds. Given that there has been a very long period of low interest rates and high liquidity in the system means a lot of money will seek investments that are perceived to be safe,...
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2010-14-05
Tuesday, 05 Oct 2010 11:14 AM
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