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Greenspan: Long-term bonds are a conundrum

WASHINGTON, Feb. 16 (UPI) -- U.S. Federal Reserve Chairman Alan Greenspan said Wednesday the unanticipated decline of long-term interest rates "remains a conundrum."

The nation's top banker also suggested the rates may soon rise.

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More-distant forward interest rates such as those for 10-year Treasury notes have declined since the Fed started last summer to gradually hike the short-term federal funds rate target.

Explanations for this disconnect, such as lower long-term inflation expectations and widespread credit from domestic and foreign lenders, don't seem to fully explain the situation, Greenspan said in prepared remarks to the Senate Banking Committee.

"For the moment, the broadly unanticipated behavior of world bond markets remains a conundrum," he said. "It will be some time before we are able to better judge the forces underlying recent experience."

The Fed chairman described the relatively low long-term interest rates in the context of a firming economic expansion, well-anchored inflation expectations and an improved outlook in financial markets.

Another explanation for low long-term rates is subdued business demand for credit and "the apparent eagerness of lenders, including foreign investors, to provide financing" such as heavy purchases of longer-term Treasury debt, the Fed chairman added.

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