Greenspan's conundrum

Richard Duncan, head of investment strategy at ABN Amro Asset Management in London, looks back on the real reasons for Greenspan's famed "conundrum" in the bond markets

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