Natixis On Bonds: 'No One Denies A Bond Bubble Boosts The Economy -As Long As It Doesn't Burst'

Natixis’ Patrick Artus broke down the bond bubble’s effect on economic conditions and what it could do in the future. “A bond bubble (abnormally low long-term interest rates) has become the main monetary policy tool in OECD countries” said the analyst.

Proponents of the central bank policy often point out the “effects of very low interest rates on the economy” such as:

Boosting credit

Increased corporate and housing investment

Lowering interest rates paid by borrowers

The analyst reaffirmed these claims made by central banksmen, but warned of a dreadful trade off. “One must remember that a bubble is always positive, as long as it does not burst… the problem is that it will burst and there will then be a financial crisis” said Artus.

Bubble Explosion or Forever Expansionary Monetary Policies

The Natixis analyst cited two reasons why the central banks use of a bond bubble was a:

1.) “Either the bond bubble will explode in the future,” leading to a financial crisis

2.) “Or central banks will be forced to forever conduct highly expansionary monetary policies to prevent the bubble from bursting”