A revival of the 30-year U.S. Treasury bond would be unlikely to raise long-term bond yields because "forces worldwide" are keeping inflation...
A revival of the 30-year U.S. Treasury bond would be unlikely to raise long-term bond yields because “forces worldwide” are keeping inflation low, Federal Reserve Chairman Alan Greenspan said yesterday.
The yield on U.S. 10-year Treasury notes has fallen to about 4.15 percent from 4.68 percent last June when the Fed began raising interest rates. In Europe, where the central bank has left the benchmark rate unchanged at 2 percent since June 2003, yields on Germany’s 10-year benchmark bond fell to a record low of 3.36 percent Wednesday.
“It is clearly a phenomenon which not only exists in the U.S. but pretty much around the world: that is, low real long-term interest rates,” Greenspan said yesterday after a speech on derivatives to the Chicago Fed’s Bank Structure Conference. “Real” interest rates are market rates minus inflation.
“What we are observing is an underlying set of pressures which is a major factor causing disinflationary forces worldwide in the past decade,” he said.
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Greenspan didn’t elaborate on the “forces” and “pressures” during his remarks yesterday. In a speech in March, he focused on two of them: globalization and innovation.
Rising inflation and eight increases in the Fed’s overnight-lending rate, now 3 percent, have done little to raise long-term rates. Yields on U.S. 10-year notes have ranged from 3.97 percent to 4.87 percent over the past year. Greenspan told Congress in February that “the broadly unanticipated behavior of world bond markets remains a conundrum.”
The Fed has, by its own admission, helped keep long-term bond yields low by signaling in every statement over the past 12 months that it would raise short-term rates at a “measured” pace.
With little threat of an abrupt rise in inflation, the Fed’s quarter-percentage-point increases in short-term borrowing costs have supported the economic expansion, Fed officials say.
The Treasury said yesterday it may resume sales of 30-year bonds early next year. The sales stopped in October 2001.
Asked yesterday whether the re-issue of 30-year bonds would solve the low-yield “conundrum,” Greenspan paused and said, “I don’t think so.”