Former Federal Reserve Chairman Alan Greenspan is sounding the alarm about a bubble that he believes is forming in the bond market.
The former Fed chairman says the current situation in the bond market is comparable to what happens in the stock market during an equity bubble.
Noting that stock-market bubbles are typically characterized by extreme price-to-earnings ratios, Greenspan said extremely low yields are telling a similar tale for bonds.
“If you turn the bond market around and you look at the price of bonds relative to the interest received by those bonds, that looks very much like the usual spread which would concern us if it were equities, and we should be concerned,” Greenspan said in an interview with Fox Business Network.
In an earlier interview with Bloomberg Television, Greenspan said it was appropriate to be very afraid of the bubble. He said the bond market price-to-earnings ratio was at an “extraordinary unstable position.”
Full article: Greenspan warns about bond-market bubble (MarketWatch)