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To date, fully 3.25% of Fed cuts have knocked only 1.5% points off 10-year US bond yields; thirty-year bond yields are barely 0.6% lower.

So while Ben Breanne’s big fix for the housing market has failed to squash longer-term mortgage rates, it’s also failed to reduce interest rates for the government, too. It also represents an ugly return of the Greenspan issue and issues

It can be said that “The broadly unanticipated behavior of world bond markets remains a conundrum”.

At that point for Greenspan and his era the staid bond market then was keeping rates cheap. Indeed, the yield on 10-year and longer-dated US Treasury bonds stayed near their multi-decade lows – first reached when Greenspan slashed the Fed funds rate to just 1% in the summer of 2003 – as he began “normalizing” short-term Fed rates from that record bottom.

Longer-term finance then cost less than shorter-term loans. And with US Treasury debt heading for $11 trillion and more it is no fire sale that any ones wants.

Once again, the Fed can’t move long-dated yields; but now the cost of paying for Washington’s spending stands well above overnight loans. And the size of Washington’s spending only keeps growing. Will the the bond market prevail.

is there a tumble in the works - or an adjustment coming forward ? Thirty-year US bonds now yield fully 5% more than short-term Treasuries. Last time this premium for long-term borrowing got so high, the US government decided to stop issuing 30-year bonds altogether. It only re-introduced them in late 2006, taking advantage of Greenspan’s Conundrum to lock in those 30-year loans at current below-short-term rates.

No one on Capitol Hill complained, therefore. Longer-term finance then cost less than shorter-term loans. And with US Treasury debt heading for $9 trillion and more, what politician didn’t want easier terms from the bond market?

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