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Tags: Ross | sovereign | debt | bubble

Wilbur Ross: Sovereign Debt Is the 'Ultimate Bubble'

By    |   Monday, 23 June 2014 08:58 AM EDT

The sovereign debt market, including both the United States and foreign nations, is forming a bubble — a bubble that will probably burst in the next two years, says star investor Wilbur Ross, CEO of WL Ross.

"I've felt for some time that the ultimate bubble, when we look back a few years from now, is going to be sovereign debt, both U.S. and other, because it's way below any kind of reversion to the mean of interest rates," he told CNBC.

U.S. 10-year Treasury yields hit a record low in July 2012, and Spanish and Italian bond yields did so in recent weeks.

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"If you look at where the U.S. 10-year had averaged over the 10 preceding years, it's around 4 percent. If it reverts back to that level at some point, there will be terrible losses in the long-term Treasury market, and those will probably be accentuated in other areas of fixed income," said Ross, who specializes in distressed investments.

The 10-year Treasury yield stood at 2.62 percent Monday morning.

Ross explained that the Federal Reserve's tapering of its quantitative easing hasn't had as much impact on the debt market as some people expected.

"There's been a shrinkage in mortgage-backed security issuance in the U.S., plus there've been fewer long-term Treasurys issued because the budget deficit has been smaller," he noted.

"Those two combined have more than exceeded the amount of the tapering. That will no longer be true starting around December of this year."

Many investors expect European government bond yields to fall further, while U.S. yields rise, as the European Central Bank (ECB) and the Federal Reserve pursue divergent monetary policies.

"The Fed will be tightening rates, while the ECB may possibly ease policy further," Peter Chatwell, a fixed-income strategist at Credit Agricole, told Bloomberg. "It's a structural investment theme."

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InvestingAnalysis
The sovereign debt market, including both the United States and foreign nations, is forming a bubble — a bubble that will probably burst in the next two years, says star investor Wilbur Ross, CEO of W.L. Ross.
Ross, sovereign, debt, bubble
329
2014-58-23
Monday, 23 June 2014 08:58 AM
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