Greenspan says ‘there is no barrier’ to negative yields in the US


Alan Greenspan

Anjali Sundaram | CNBC

Former Federal Reserve Chairman Alan Greenspan said nothing is stopping the U.S. from getting sucked into the global trend of negative yielding debt, Bloomberg reported Tuesday.

“There is international arbitrage going on in the bond market that is helping drive long-term Treasury yields lower,” Greenspan said in a phone interview. “There is no barrier for U.S. Treasury yields going below zero. Zero has no meaning, beside being a certain level.”

With global central banks engaging in unprecedented monetary easing, a record $15 trillion of government bonds worldwide now trade at negative yields. As uncertainty reigns, investors are looking for a safe haven for their money, even if it means getting back less than they gave.

“Why people continue to buy long-term Treasurys at such low yields may be also due to forces having altered people’s time preferences,” Greenspan said. “But there is hundreds of years of history showing the long-term stability in time preference, so these changes won’t be forever.”

Greenspan, who chaired the central bank from 1987 to 2006, said nothing is standing in the way of the U.S. breaching the zero level.

The U.S.-China trade war is putting pressure on the 10-year Treasury note, which nearly inverted with 2-year Treasury note, a historic recession indicator. Weaker economic data domestically and abroad also pressured the Federal Reserve in July to cut interest rates for the first time since the financial crisis.

Greenspan is not alone in his hypothesis.

Pimco, one of largest fixed income mangers in the world, said last week that “U.S. Treasuries – which many investors view as the ultimate ‘safe haven’ apart from gold – may be no exception to the negative yield phenomenon. And if trade tensions keep escalating, bond markets may move in that direction faster than many investors think.”

JP Morgan, in a 2016 analysis, said the Fed might one day be pushed to negative yields.

“If recession risks were realized, the need for substantial additional policy support would likely push the Fed towards NIRP,” the bank wrote.

— read the full Bloomberg article here.

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