NEW YORK (Reuters) - New York Federal Reserve President William Dudley said on Tuesday that among the concerns he sees in the markets are a frothy loan market, low volatility, and investment in illiquid assets.
Speaking at an event in New York, Dudley said he did not see areas suffering from distortions, but he did cite a few areas worth watching.
“Volatility in the markets right now is unusually low,” he said, saying it was at 2006-07 levels, and not just fixed income but foreign exchange and equities too.
“I am nervous that people are taking too much comfort in this low-volatile period and as a consequence of that, taking bigger risks,” he said following prepared remarks.
Dudley also gave views on why 10-year Treasury yields were low.
“The only way to explain that is that either the bond market is frothy or... the expectations of the equilibrium real rate are coming down,” he said. “We have an extraordinarily accommodative monetary policy right now by historical standards, and the economy is not growing that fast. So that should inform you somewhat.”
Reporting by Michael Flaherty; Editing by Chizu Nomiyama