Greenspan: low bond yields remain unsolved puzzle

Tuesday, June 7, 2005 | 9:08 a.m.

Federal Reserve Chairman Alan Greenspan said that the "unusual" decline in long-term U.S. Treasury yields still can't be fully explained and that a situation in which short-term yields exceed long-term returns may not signal an economic slowdown, as it has in the past.

An inverted yield curve historically was "a forward indicator for softening economic activity," Greenspan said in response to a question after speaking by satellite to the International Monetary Conference today in Beijing.

"I cannot tell you whether in fact we will see an inverted yield curve," Greenspan said. "We would not automatically assume that it would mean what it meant in the past."

Greenspan's comments suggest he still views the drop in market yields on government debt, even as the Fed raises short- term rates, as an anomaly. The central banker told Congress on Feb. 16 that declining long-term rates was a "conundrum."

Explanations such as a glut of global savings, which may spur bond buying, can't fully explain why yields are falling in the U.S. and worldwide, the central banker said.