The Fed keeps nudging the short-term rate higher, but the buyers and sellers in the long bond market keep nudging those interest rates lower. Nobody has figured out why; everybody's still guessing. Greenspan, the rest of the Fed Board of Governors, journalists, everybody.
Below is a sampling of the guesswork going on these days . . .
From Time magazine online:
In February [Greenspan] called the situation a "conundrum" and then last month added that "the economic and financial world is changing in ways that we still do not fully comprehend."
From Business Week Online:
A Jan. 31, 2005, article in BusinessWeek noted that a "global glut of savings" could explain low interest rates. Then, in March, Fed Governor Ben S. Bernanke -- now head of President George W. Bush's Council of Economic Advisers -- unleashed the flood gates with a speech on the "global saving glut." Since that speech, 10-year interest rates have dropped about half a percentage point, and with each ratchet down, more and more economists came over to the high-global-savings point of view. . .
True, there are still plenty of skeptics. James W. Paulsen, chief investment strategist at Wells Capital Management, dismisses today's roughly 4% interest rate as a cyclical phenomenon that could quickly disappear.
. . . Alan Greenspan will need to keep "conundrum" in his vocabulary for at least a while longer.
As I said on the chart, this is a highly unusual situation we are witnessing; something's gotta give. I'll keep a close eye on this, and post it again after things develop a little further.