IPB 077: The Perilous Bondex

 

 

Former Federal Reserve Chairman, Alan Greenspan, believes the next bubble to burst will not be in the equity markets…it will be a normalizing of yields in the bond market as inflation ticks up.

During a Bloomberg interview, Greenspan said…

“By any measure, real long-term interest rates are much too low and therefore unsustainable”

And he went on to say…

When they move higher they are likely to move reasonably fast. We are experiencing a bubble, not in stock prices but in bond prices. This is not discounted in the marketplace”

Greenspan also warned that we are headed toward a “stagflation” that we haven't seen since the 1970's.

But what does any of this have to do with life insurance?

As we all know, life insurance companies are large buyers of bonds and have been long-suffering over the last several years as their bond portfolios mature and they're forced to buy bonds with much lower yields.

Come back next week to hear our take on what it all means for life insurance companies.


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