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The long-term interest rate conundrum: not unraveled yet?

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  • Tao Wu

Abstract

In congressional testimony on February 16, 2005, Federal Reserve Chairman Greenspan characterized the recent behavior of long-term interest rates as a \\"conundrum.\\" Typically, long-term rates tend to rise as monetary policymakers raise short-term rates. But not in the current episode. Despite steady monetary tightening beginning in the middle of 2004, the yields on long-term U.S. Treasury securities actually have declined since then by about 50 basis points. As a consequence, the current level of long-term interest rates seems to be well below what one would expect on the basis of economic fundamentals.

Suggested Citation

  • Tao Wu, 2005. "The long-term interest rate conundrum: not unraveled yet?," FRBSF Economic Letter, Federal Reserve Bank of San Francisco, issue apr29.
    • Handle: RePEc:fip:fedfel:y:2005:i:apr29:n:2005-08
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    Citations

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    Cited by:

    1. Fernando Broner & Daragh Clancy & Aitor Erce & Alberto Martin, 2022. "Fiscal Multipliers and Foreign Holdings of Public Debt," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 89(3), pages 1155-1204.
    2. Harm Bandholz & Jorg Clostermann & Franz Seitz, 2009. "Explaining the US bond yield conundrum," Applied Financial Economics, Taylor & Francis Journals, vol. 19(7), pages 539-550.
    3. Craine Roger & Martin Vance L, 2009. "Interest Rate Conundrum," The B.E. Journal of Macroeconomics, De Gruyter, vol. 9(1), pages 1-29, March.
    4. Weißbach, Rafael & Ponyatovskyy, Vladyslav & Zimmermann, Guido, 2006. "The Yield of Ten-Year T-Bonds: Stumbling Towards a 'Good' Forecast," Technical Reports 2006,50, Technische Universität Dortmund, Sonderforschungsbereich 475: Komplexitätsreduktion in multivariaten Datenstrukturen.
    5. Glenn D. Rudebusch & Eric T. Swanson & Tao Wu, 2006. "The Bond Yield "Conundrum" from a Macro-Finance Perspective," Monetary and Economic Studies, Institute for Monetary and Economic Studies, Bank of Japan, vol. 24(S1), pages 83-109, December.
    6. Conterius, Simeon & Akimov, Alexandr & Su, Jen-Je & Roca, Eduardo, 2023. "Do foreign investors have a positive impact on the domestic government bonds market? A panel pooled mean group approach," Economic Analysis and Policy, Elsevier, vol. 77(C), pages 863-875.
    7. Yash P. Mehra, 2006. "Inflation uncertainty and the recent low level of the long bond rate," Economic Quarterly, Federal Reserve Bank of Richmond, vol. 92(Sum), pages 225-253.

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