America's interest rate conundrum explained

The author of bestselling book, The Dollar Crisis explains why the long end of the US yield curve previously failed to respond to Fed rate hikes; but why the long end should now rise.

When the Federal Reserve began increasing the Federal Funds Rate in June 2004, the yield on 10-year Treasuries fell instead of rising. Indeed, yields remained below their mid-2004 level until April 2006, despite 15 rate hikes see Figure 1. Chairman Greenspan described that unexpected outcome as a ôconundrumö. In retrospect, it is now clear that the conundrum originated with the discovery of accounting irregularities at Freddie Mac and Fannie Mae.

During 2004 and 2005, when their accounting irregularities came to...

To continue reading, please login or register for free

Click for more on: started | ended

Print Edition

FinanceAsia Print Edition