Cleaning & Restoration Breaking News

Behavior of World Bonds a 'Conundrum'

WASHINGTON (Reuters) - Federal Reserve Chairman Alan Greenspan said on Wednesday he was just as puzzled as everyone else about why long-term interest rates have remained low in spite of official rate increases by the central bank.

"For the moment, the broadly unanticipated behavior of world bond markets remains a conundrum," Greenspan told the Senate Banking Committee.

The admission by Greenspan that there were no easy explanation for why long-term interest rates are so low surprised observers, and analysts said the comments suggested the bond traders may be mispricing the market.

"There is some hint that perhaps the bond market has got it wrong and yields shouldn't be this low. It is certainly bearish for the bond market," said Alan Ruskin, research director at 4CAST Ltd in New York.

The Fed chief outlined several possible explanations for the dip in forward real interest rates since June.

"The favorable inflation performance across a broad range of countries resulting from enlarged global goods, services and financial capacity has doubtless contributed to expectations of lower inflation in the years ahead and lower inflation risk premiums," he said.

"But none of this is new, and hence it is difficult to attribute the long-term interest rate declines of the last nine months to glacially increasing globalization," Greenspan said.

He said the view that investors were guessing that oil prices would hold back growth did not appear to "mesh seamlessly" with rising stock prices and narrowing credit spreads.

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