The former chairman of the US Federal Reserve Alan Greenspan expects, the long-term interest rates to rise amid accelerating inflation and economic growth. The federal funds rate currently ranges from 0.25 to 0.50%, while the yield on 10-year government bonds remained below 2%. Greenspan once again reiterated that low interest rates are not sustainable in the long term. In his resurgent inflation could end the bull market in bonds.
“If the early stages of inflation, which are now developing, would take hold, you could get a fairly major shift away from these extraordinarily low yields on 10-year bonds”, said Alan Greenspan. “I think up in the area of 3 to 4, or 5 percent, eventually. That’s what it’s been historically”, added the former chairman of the US Federal Reserve.
The three-year appreciation of the government securities may set a new record this year, as in July, the yield on 10-year bonds dropped to a historic low of 1.32%. Although the yield increase since the Fed is preparing to raise rates in December, the overall market has generated a return of 4.2% this year.
Greenspan warns that there are challenges with the rise in rates to historically normal levels. There is a whole structure adjustment, which takes place in 2008 and should be further developed, and it will not happen without problems, according to formed Fed chairman.
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