Goldman Sachs Group Inc. President Gary Cohn warned of a potential drop in fixed-income prices as bankers and policy makers in Davos celebrated surging demand for financial assets.

Debt markets that have seen junk-bond yields drop to record lows may face a “substantial repricing” if interest rates spike or investors begin pulling money out of fixed income, Cohn, 52, said in an interview yesterday with Bloomberg Television’s Erik Schatzker at the World Economic Forum in Davos, Switzerland.

The Spanish government attracted record demand for its 7 billion-euro ($9.4 billion) sale of 10-year bonds this week and Portugal sold five-year debt for the first time in two years. The Standard & Poor’s 500 Index topped 1,500 yesterday for the first time since 2007.

“Markets are really giving the sign that progress has been made,” Martin Senn, chief executive officer of Zurich Insurance Group AG, said in an interview after a meeting of bankers and policy makers including Italian Prime Minister Mario Monti and Bank of Canada Governor Mark Carney. Senn said that he and his colleagues have to avoid becoming “complacent.”

“I’m not concerned at this point of that because there’s a good awareness of the respective risks,” he said.

Resurgent Markets

For bankers in Davos, the resurgent markets come as a relief after four years of fretting over regulation and fiscal woes in Europe and the U.S. Investors have funneled cash into junk bonds at a record pace as the Federal Reserve holds benchmark interest rates between zero and 0.25 percent and buys back bonds to suppress borrowing costs.

Morgan Stanley CEO James Gorman, whose New York-based firm helped sell Portuguese bonds this week, said in a Jan. 23 Bloomberg TV interview that central banks’ policies of keeping interest rates low aren’t creating asset bubbles.

“I’d be hard-pressed to describe this as toppy,” Gorman 54, said.

Low interest rates have stoked demand for riskier assets. Yields on dollar-denominated junk bonds dropped to an unprecedented 6.46 percent on Jan. 22, and prices rose to 105.6 cents from as low as 54.8 cents in December 2008, according to Bank of America Merrill Lynch index data.

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