Greenspan's conundrum

Market graphic


When the Fed started hiking rates in June 2004, the yield on 10-year Treasuries fell instead of rising, and they remained below their mid-2004 level until April 2006, despite 15 rate hikes. Then Fed chairman Alan Greenspan described that unexpected outcome as a "conundrum". In retrospect, it is 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 light, those two

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