NEW YORK (Reuters) - There is little reason to fear a wholesale pullout by China out of U.S. government bonds, former Federal Reserve Chairman Alan Greenspan said on Tuesday.
While expressing concerns about China’s runaway growth rate and what he described as overvalued stocks, Greenspan played down the prospect that Chinese authorities would sell Treasuries in earnest, forcing a sharp spike in U.S. interest rates.
Asked at a commercial real estate conference if investors should be worried about this oft-cited concern, Greenspan said: “I wouldn’t be, no.”
Still, Greenspan said the reason such a withdrawal was unlikely was that China would not have anyone to sell the securities to, hardly the sort of comfort jittery bond investors were seeking.
U.S. government debt has been under severe pressure over the past week, with yields rising sharply on anxiety over the likelihood that global credit conditions would tighten as the year progresses. Bond prices move inversely to yields.
Greenspan reinforced the nervousness, saying that a global liquidity boom which he traced back to the end of the Cold War would not go on forever.
“Enjoy it while it lasts,” he told the audience.
Now a private-sector consultant following more than 18 years at the U.S. central bank, Greenspan reiterated his prediction that China’s latest growth spurt had come too far, too fast.
“We cannot continue this rate of growth in China and the Third World. This cannot continue indefinitely,” Greenspan said in a speech. “Some of these price/earnings ratios are discounting nirvana.”