271. Bond Market Bubble?
- Author:
- John H. Makin
- Publication Date:
- 01-2006
- Content Type:
- Policy Brief
- Institution:
- American Enterprise Institute for Public Policy Research
- Abstract:
- On Tuesday, January 18, the yield on fifty-year inflation-protected U.K. government bonds (what the British call "indexed-linked gilts") dropped to 0.38 percent, about one-seventh the historical average of just over 2.6 percent for such debt instruments. Just a few months earlier, that yield had been over 1 percent, still extraordinarily low by historical standards, and especially low in an economy that has experienced fifty-three consecutive quarters of positive growth. A yield drop from 1 percent to 0.38 percent on a fifty-year bond corresponds to a 30 percent rise in its price over a period of just three months. That is an annual return of over 100 percent, much higher than the 13 percent annual increase in U.S. house prices at midyear and the 20 to 30 percent gains seen in the stock market before the March 2000 crash. The asset bubble has spread to long-term government bonds, especially those with inflation protection. What is going on here?
- Topic:
- Economics, Government, and International Trade and Finance
- Political Geography:
- United States, United Kingdom, and Europe