The recent ongoing crisis in the U.S economy has changed the nature of the bond market to a great extent. Most of the professional traders are having a tough time to book their profit due to the extreme level of market uncertainty. According to Alan Greenspan, the recent uncertainty in the bond market may cause a bubble which will affect investors of all level. FED chairperson has already stated that the current performance of the U.S economy is not up to the market yet a significant recovery attempt will allow them to hike their interest rate at the end of the year 2017.Greenspan states that the global market might experience a surge in the interest rate which will be the leading catalyst for bursting the bubble of the stock market.
The recent condition of the bond market is pretty much similar to stock market equity bubble which is the result of high price despite slowing earnings of the consumers. The recent benefit that the traders get from the purchase of a bond is in an alarming state. Greenspan further added the extreme level of uncertainty in the bond market can result in greater loss of the investors in near future. According to him, interest rate ranging from 4%- 5% is very normal but things might drastically change after the ongoing rate hike in U.S interest rate.
In his most recent interview with FOX Business Network, he also added that the U.S economy is struggling hard to keep pace with modern economic growth. Fundamentally the product is almost zero for the U.S economy and the extreme level of negative U.S consumer sentiment is also threatening the dollars bulls for further capital investment in the market. The more investment opportunity you will look for the greater chance you will create to lose money due to sluggish U.S economy under the new administration of Mr. Trump. He also says that the lack of capital investment problem will also push the economy down causing the bond bubble to burst in near future. Without having a decent average hourly income, hiking the interest rate might cause a long term bearish impact in the U.S economy. Despite the current borrowing problem, the capital investment in the bond market is creating the basic economic problem in the market stability.
The current rate hike decision by the FED might greatly impact the stability of the bond and stock market in near future. Without having a stable economic performance, the U.S economy has undergone 2 rate hike which at some point will definitely create a strong level of uncertainty in the global market. Currently, the equity premium is also devalued and doesn’t go with the current market data. This extreme level of uncertainty in the U.S economy will ultimately create strong bearish pressure in the bond and stock market regardless of the performance of U.S economy. To be precise the rate hike decision is the active fuel for the enlargement of the bubble. Based on his statement the investor’s community should pay a close attention to their current trading strategy to save themselves from the future market crisis.