Greenspan

By the standards of Greenspan's tenure at the Fed, bond yields today look aberrational. When he began as Fed Chairman in August 1987, markets were still in the process of recovering from the double-digit inflation of the late 1970s and early 1980s. At Greenspan's start date, the 10-year Treasury yield was about 9%. When he left office in January 2006, it was 4.57%. Yet, the level now isn't far off from the average for the past 10 years of 2.66%, and nearly matches the five-year average of 2.18%. And while the Fed 's recent history includes a significant amount of Treasury purchases, it stopped building up its bond portfolio in October 2014, meaning the market has been steering the ship on prices for almost three years.

It's possible that Greenspan sees oncoming inflation that the market is missing. However, the bond market has been doing a good job of assessing inflation risks. Past performance is no guarantee of future results, the bond market actually seems to have been doing a good job of assessing risks. The Treasury bond market is forecasting that inflation will run at an average rate of 1.81% during the next 10 years. While that may seem extraordinarily low, it syncs up remarkably well with the 1.81% annual rate of inflation for the 2007-2016 period.

The economy is entering its ninth year of expansion, making it one of the most enduring recoveries on record. However, average hourly earnings of 2.5% are still below longer-term historical averages and indicate workers still lack leverage to push wages higher, even with an unemployment rate of 4.4%. A Wall Street Journal economist survey projects U.S. gross domestic product will climb 2.3% this year and 2.4% in 2018. It's not gangbusters growth, but it's not stagnant, either.

This also isn't the first time Greenspan has expressed concern about a bond bubble. Two years ago, when the 10-year Treasury yield was 2.44% and the CPI was 0.2%, he told Bloomberg TV that 'we have a pending bond market bubble.' In a Bloomberg TV interview July 2016, he expressed concerns about stagflation and said 'we're seeing the very early signs of inflation beginning to tick up.' He also said with the 10-year Treasury yield pushed down to 1.50% by Brexit concerns, that he was 'nervous' bond prices were too high.

Greenspan S Clothing

Since 2012, Fed policy has been to aim for 2% rate of inflation, using their preferred measure of personal consumption expenditures. Only once since that time, in February, has inflation reached the central bank's target, and there are few signs that it will return to that level any time soon. The consumer price index rose 1.6% for the 12-month period ended in June, and PCE inflation fell for a fourth consecutive month to 1.4% in June. Barring the emergence of some catalyst to push prices higher, the bond market's lack of concern, as expressed in current yields, doesn't seem misguided.