How scary is the bond market
How scary is the bond market? Robert Shiller, Professor of Economics at Yale University says with ultra-low bond rates now prevalent around the world many are wondering whether a crash (in bonds) could drag down markets for other long-term assets, such as housing and equities. Shiller, who has been studying and modelling bond markets, in depth, since 1972 says that According to our model, long-term rates in the US should be even lower than they are now, because both inflation and short-term real interest rates are practically zero or negative. Even taking into account the impact of quantitative easing since 2008, long-term rates are higher than expected. Shiller says that if the theory he and others have developed over more than 40 years holds true then 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. Read more on how he arrives at this conclusion here: (VIEW LINK)
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