The Federal Reserve is preparing to lift interest rates later this year, but many bond investors predict that chairwoman Janet Yellen will confront a puzzle that stumped one of her most famous predecessors.
In 2005 Fed chairman Alan Greenspan — then known for his gnomic but omniscient air — highlighted how the 10-year Treasury yield had shrugged off hefty increases in the US central bank’s benchmark interest rate, and called it a “conundrum”.
It looks like Ms Yellen could face a conundrum of her own. Although longer-term interest rates have jumped in recent months, the difference between shorter and longer-dated maturities remains low in light of the looming hikes, and the Fed’s desire to also see longer- term rates rise.
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