“A bubble currently brewing in sovereign debt will likely burst in the next couple of years, U.S. billionaire Wilbur Ross warned on Monday.
“I’ve felt for some time that the ultimate bubble, when we look back a few years from now, is going to be sovereign debt, both U.S. and other, because it’s way below any sort of reversion to the mean of interest rates,” the distressed debt investor told CNBC.
“If you look at where the U.S. 10-year had averaged over the 10 preceding years, it’s around 4 percent. If it reverts back to that level at some point there will be terrible losses in the long-term Treasury market and those will probably be accentuated in other areas of fixed income.”
Ross argued that slowing issuance of assets like mortgage-backed securities and long-term Treasurys post-credit crisis, had helped to insulate the market from the full impact of the Federal Reserve’s gradual slowdown of quantitative easing – a process known as tapering.
Investors have to “build in refinancing risk” when buying assets at the moment, he said….”