Ben Carlson, Columnist

Bond Bubbles Tend to Slowly Deflate, Not Burst

It’s unlikely that we'll see a crash in high-quality sovereign bonds in the same way that we would in stocks.

August 10, 2017 at 9:00 AM UTC

Ben Carlson is director of institutional asset management at Ritholtz Wealth Management. He is the author of "Organizational Alpha: How to Add Value in Institutional Asset Management."

The surprising history of bond returns.
Photographer: Aamir Qureshi/Getty Images

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Former Federal Reserve Chairman Alan Greenspan is worried about a bond bubble. “By any measure, real long-term interest rates are much too low and therefore unsustainable," Greenspan said in a recent interview. "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 first warned about a bond bubble back in 2010. Although some will say he was early and others would say he was wrong, it makes sense to put things into perspective when discussing bonds in the context of a bubble. As an investment vehicle, bonds are very different from stocks in the way they’re structured -- higher up the capital structure, set payment dates, set maturity dates, etc.