30-year Treasuries

["Henry C.K. Liu" <hliu@xxxxxxxxxxxxxx>]

The following is a composite summary of recent market reports from a
variety of media sources interlaced with my comments to give my sense of
an overview picture.

The 30-year bond (US30YT=RR) gained 8/32 to yield 4.68 percent on
Friday, July 11 shrugging off some of the pressure exerted since
Wednesday, July 9 2003, when Treasury Undersecretary Peter Fisher
announced his intention to resign.

Fisher played a key role in the elimination of the 30-year bond back in
October 2001 and speculation had mounted over the chances of its
reintroduction once he leaves.

The Washington Post reported in mid May that Treasury Undersecretary for
Domestic Finance Peter Fisher had withdrawn his name for consideration
as president of the New York Fed.

The market believed that as long as Pete 'The fixer' Fisher
(LTCM) remained in his current position at the Treasury, the 30-year will
not be reinstated. It was Fisher's decision to eliminate the 30-year
bond on Halloween day 2001 and his reputation and credibility are tied
to it.  Recently, while still at the Treasury, he said rumors of the
return of the 30-year 'aren't worth spit'.

With barely any warning to the financial markets, Fisher announced in
October 2001 that Treasury would no longer issue 30-year bonds--the
so-called benchmark securities that had set prices for the whole
bond market. The rationale was that the government was paying too much
in interest for the long bond. Besides, big budget surpluses had reduced
the need for the 30-year.  It is cheaper for government to issue new
money (non-interest bearing state credit instrument) through the Fed
than to issue sovereign debts through the Treasury.  Of course Fisher
did not point out that an sustainable long term monetary policy requires
a constant but low rate of inflation - which is essential the money
holder's interest cost to the state money issuer.  Thus money in a
working growth economy is not really interest free.

Greenspan said in the Q&A during his July 15 Humphrey Hawkins testimony
to the Senate that while the Fed has no opinion of the 30-year bond
policy, it is obvious that things have change:  meaning federal deficits
have replaced federal surpluses in the foreseeable future.

Things have indeed changed dramatically, with the federal deficit in
2003 hitting $450 billion or 4.5% of GDP, not even counting
war/occupation costs. And the government's bond rates have
fallen, causing a boom in bond prices until recently.

Many market participants think the Treasury should reverse its
decision--and start issuing new 30-year bonds. Doing so would help
government finances, give investors a long-term, risk-free investment
option, and allow corporations to more easily price long-term debt.
There was a time this would be true. The long bond used to be the safest
hedge instrument before the emergence of structured finance. The entire
fixed income sector was based on the long bond.  Today, derivatives and
swaps have changed the meaning of hedging, turning it from a risk
management device to a risk taking play for high returns for
speculators. Structure finance, not withstanding the claim of Greenspan
that derivative provide market stability.  Structured finance
dis-integrates long term security into short term differentials, with
profit driven by volatility. A stable market is bad news for hedge
funds.  Structured finance has reduced the relevance of the long bond.

The term fixed income has come to mean fixed only for the duration of
the derivative contract term, even for the long bond.  Widows and
orphans trust funds, pension funds as well as Freddie Mac mortgages have
all been exposed to inappropriate risk by derivative plays, at the mercy
of hedge funds.

It wouldn't be the first time the government changed its policy on the
long bond. From the 1950s through the middle of the 1970s, 30-year bonds
were issued only sporadically. It was not until 1977 that Treasury
started using large quantities of 30-year bonds to fund growing and
permanent deficits.

The theory for bring the long bond back is that Treasury would gain by
tapping into institutional and foreign investors attracted to the
30-year. More buyers means lower rates for the government. And a 30-year
issue would lock in low rates for the next 30 years, holding down
interest payments and reducing future deficits. But with agencies play
derivates, it is not clear that government actually saves money by
issuing the long bond. Even though new 10-year notes cost the Treasury
0.8 percentage points less in interest than 30-year rates today, in a
decade, they might have to be refinanced at higher rates. "The U.S.
Treasury should be at least as smart as homeowners," notes David A.
Wyss, chief economist at Standard & Poor's, a unit of The McGraw-Hill
Companies.  But it is, even with the 30-year bond because the market
value, therefore the effective yield of the long bond is not at all
fixed over its life time.  The the net value of government long debt is
not constant at any moment in time, nor its effect on the credit market.
 The only thing fixed is the interest payout by the government on the
outstanding long bonds. Since new long bonds are issued at market rates,
the average cost of long bonds to the government is not constant.
Besides, what Fisher missed is that the purpose of the long bond is not
to fund government cash needs, but to provide a benchmark for the credit
market.  The interest cost to the government has little macroeconomic
consequence, except to those who misunderstood macroeconomics as a
branch of accounting.

The conventional wisdom is that reissuing the 30-year bond would also
offer risk-shy investors more choices, helping both institutional
investors with a long-term investment horizon and individuals building a
retirement portfolio. Correctly done, investing in a 30-year Treasury
bond means that "people who are 35 or 40 years old who are saving for
their retirement would know exactly what they're going to have in 30
years," says Wharton School economist Jeremy Siegel. While other
long-term securities exist, none are truly risk-free.

It is argued that bringing back the long bond would also help pension
funds, insurers, and corporate borrowers. Pension funds, hit hard by
market volatility, could better protect returns by upping their
long-term risk-free holdings. Insurers could better match long-term
investment to long-term liabilities. But few retirment accounts are
satisfied with long bond yields.  No pension fund manager can keep
his/her job for long if the assets under management is excessively heavy
in long bonds. And issuers had been chasing high returns by borrowing
short term to invest in long bonds, and will be caught short when a
reverse yield curve takes over, as it did during the final years of the
Clinton "boom".

And it is also argued that a reissued 30-year would help companies price
their own long-term debt, attracting more investment. But short term
debts are now routinely used to finance long term liabilities, making
the long corporate bond a wall flower, a mere underlying benchmark to
calculate spread.  GE cannot afford to borrow long term debt. It is the
low rate GE commercial papers that give GE the spread to be a financial
powerhouse.  GE is extremely vulnerable to deflation and to reverse
yield curves.

It would be tough for Treasury to reverse the decision to drop the  long
bond. To guarantee buyers sufficient liquidity, Treasury would have to
commit itself to issuing 30-year bonds for several years, which makes
sense only if deficits are going to persist--and that's something the
Bush Administration isn't willing to admit yet, despite irrefutable
evidence.

Shock waves from Greenspan virtually disavowing unconventional policy
means (buying long bonds) have fully eclipsed the gains set in motion by
his original references to deflation. Longer-dated bonds proved
particularly vulnerable, especially after the release of
stronger-than-expected June retail sales. Their premium evaporated just
as a record $450 billion 2003 deficit was predicted by the White House
following elevated hopes for a reinstatement of bond issuance recently
with Fisher's resignation.

The curve steepened sharply, not only pricing in economic recovery but
also the likelihood that Fed funds will be held low, so long as Fed
reflation efforts continue. While Greenspan digged hard for additional
grounds for optimism on the economy, he made it clear that while on the
verge of price stability rates would be kept low. The September bond
closed over 2 points lower at 112-16, while the 2-year note and 30-year
bond spread jumped 10 basis points from pre-testimony levels to +350
basis points -- fresh 11-year wides. Fed funds futures predicted 25-30%
odds of another quarter point cut.

The bond market has been on a roller-coaster ride recently as investors
struggled to divine the intentions of the Fed. Gambling that
the Fed would buy bonds to help ward off deflation, investors piled into
the market in mid-June, sending the yield on the 10-year Treasury note
to a 45-year low of 3.1%. But when the Fed opted to merely trim interest
rates on June 25, investors turned tail and sold bonds.

The coup de grâce came on July 15 as Chairman Alan Greenspan forecast
faster economic growth and seemingly all but ruled out bond purchases by
the Fed. The bond market quickly tanked. Greenspan tried to turn the
tide the next day by saying he hadn't taken bond buys off the table, but
the damage had been done, and the 10-year yield ended the day at close
to 4%.

The wild market fluctuations have left a sour taste in the mouth of many
market participants. Some mutter about being manipulated and misled by
the Fed. "Greenspan has lost some credibility with the market," says
Melvyn B. Krauss, senior fellow at Stanford University's Hoover Institution.

Of course, some of the rise in bond yields is due to growing hopes for
an economic rebound -- a phenomenon to be welcomed but highly unlikely
given the poor fundamentals, geo-political uncertainties, and policy
fixations.  Yet the rapid increase in long-term interest rates
also reflects wariness about the Fed floundering with wishful thinking.
If investors feel they can't count on a predictable and level-headed
Fed, they're apt to push bond yields and long-term rates up higher than
justified by the perceived or wishful strengthening economy alone.

A premium for Fed risk could even lift rates to the point where they
hurt the very economic recovery the bulls are anticipating. "This is not
an economy that's going to take off like a rocket," says former Fed
Governor Lyle Gramley, now senior economic adviser for Schwab Capital
Markets. "I would be more comfortable if 10-year yields were at 3 1/2%,
instead of 4%."  It is an economy that will most likely explode during a
unprepared takeoff from leaky ideological O rings.  It will move from
unpleasant recession to fatal catastrophe.

The federal budget deficit is ballooning. The White House on July 15
predicted a financing shortfall of $455 billion in fiscal 2003, and $475
billion for fiscal 2004, which may well come in at $600 billion. The
forecast fanned fears in the bond market of stepped-up sales of Treasury
securities, helping to send prices even lower and yields higher.

Dealers, banks, and hedge funds are sitting on large bond positions they
built up via so-called carry trades -- borrowing money at low short-term
rates and then investing it in longer-dated securities. This is what is
behind bank profit in the latest quarter, which most have hailed as good
news rather than the bad news that it actually represents. But with the
value of those bond investments falling, there's a risk of a major
sell-off as those trades are unwound, says economist Henry Kaufman.
Kaufman has seldemn if ever been wrong on the economy in his long career
on Wall Street.

Fed policymakers egged on investors in June with warnings about the
dangers of falling prices, capped off by Greenspan's colorful comments
on the need to build a "firebreak", Greenspan’s word in a June 3 speech,
against deflation. In private meetings and public speeches, Fed
officials suggested they were deliberately trying to guide long-term
rates lower and left open the possibility of buying bonds to help their
chances.

There's no doubt that investors read more into some comments than the
Fed intended. They ignored repeated warnings by Greenspan and other Fed
policymakers that the risk of deflation was, after all, remote. Instead,
they snapped up bonds in the mistaken belief that a desperate Fed would
bail them out by buying up their securities. "The market has got to take
some responsibility for its own actions," says former Fed Governor
Laurence H. Meyer.  This is rational expectation at work to the point of
irationality.  The detonator is the Fed's claim that the risk of
deflation is remote.  Not even taxi drivers believe it.  Even the BIS is
calling for anti-deflationary measures for all of the world's central
banks.  Greenspan's war plan is always to anticipate phantom inflation
and deny real deflation.  When Greenspan again recite his mantra that
America enjoys the highest stabdadr of living, presumably due to his
monetary genius, he was interrupted by the senator from Vermont, the
Greenspan should visit Vermont to find out how hard life really is in
America.  The high standards of living is limited to the few who
Greenspan's policies had been designed to favor, namely financiers and
top executives.

The markets' eroding confidence in the Fed has consequences. The danger
grows if investors feel so threatened by what they see as an unsteady
Fed policy that they demand ever higher risk premiums on Treasury bonds.
Greenspan has been repeating his promise to buy long term treasuries if
the economy needs it. His out is that the economy never needs it.
Greenspan is milking the economy dry to maiantain the financial markets.
 And, American voters, hurt by the economy, will turn against the
financial markets and its managers.

The unconventional means suggested by Bernanke is that the Fed can buy
10 or 30 year treasuries from open market operations and create new
reserves in the banking system. This drains treasuries from the market
and makes each treasury worth more as a result. This allows the sellers
to offer lower yields to the new buyers and still be able to sell them.
Simple supply and demand at work.

As the yield on the 10 or 30 year treasury falls all other rates that
are tied to it fall, corporate debt, fixed and floating home mortgages
of all durations. When Greenspan says he is ready and willing to buy
long treasuries to stimulate the economy what he means is that he will
manipulate mortgage rates down to attract new buyers into housing and
cause another refinance boom, which has come to a screeching halt in
recent months.

The 30 year fixed rate mortgage accounts for about 65% of all mortgage
loans in the US. The rate on that loan is determined largely by the cost
of borrowing money at Fannie Mae and Freddie Mac. Their borrowing cost
is determined by the yield on the 10 year treasury because most 30 year
mortgages are refinanced with 10 years. That rate will be the 10 year
treasury yield plus a risk premium for lending money to Fannie and
Freddie versus lending money to the US government. As the yields on
the 10 year US treasury fall lenders to Fannie and Freddie are willing
to accept a corresponding reduction in rate they will accept from Fannie
and Freddie for lending money to them as well. Fannie and Freddie then
pass this reduction on to the banking and mortgage industry in the form
of lower PAR rates or cost of money for mortgages. The banking and
mortgage industry then pass this reduction on to each home owner by way
of lower mortgage rates.

This process has been going in a passive manner for the past year, as
the Fed has indirectly been the cause of lower mortgage rate over the
course of this year. This is Greenspan housing bubble after his eqity
bubble burst.

For the past year the Fed has been increasing money supply by buying
treasuries form the banks and replacing them with bank reserve, high
power money. The banks in turn have been turning around and re-buying
treasuries on the open market. The result has been lower long term rates
and a refinance boom in the US housing market.

The agencies have also been hedging their interst rate exposures with
derivatives. There is on-going investigation that will eventually reveal
very unwelcome disclosures, the tip of the iceberg having been hinted in
recent weeks.

The Fed's primary supply side game plan was to encourage banks to lend
to corporations which has not occurred becuase of overcapacity that
erodes pricing power and proifts. The reduction in mortgage rates
during this period was a peripheral bonus that sustained consumers
spending by the Fed repricing long term debt to support the economy
while the Fed attempted to get corporations to borrow. The housing
refinance boom provided cash-outs from appreciated equity resulting from
the housing bubble as well as lower loan payments to finance consumer
spending. When the housing bubble bursts, negative equity will create
chaos in the financial markets through the collapse of collateralized
martgage obligations (CMO).

Greenspan appears to have shifted Fed policy to preempt deflation and
aggressively move rates down ahead of the economic contraction and is
now preemptively telling the market he may move out on the yield
curve to long bonds and buy long treasuries with the explicit goal of
driving mortgage rates down.

The reason he is being so vocal about his possible intentions to buy
long term treasuries is to ensure hedge funds and most importantly the
soeverign debt markets are hedged against falling rates before it
occurs. It is a warning or "heads up" so to speak to them.

Last summer the duration gap problem at Fannie Mae was the direct result
of Fannie Mae not anticipating that the 10 year treasury yield would go
below 4%. When it did their duration gap widened and they lost enormous
amounts of money. The reason they were not properly hedged is that they
anticipated that the reduction in Fed Funds and corresponding increase
in money supply would depreciate the dollar and increase the potential
for future inflation in the US economy which would have been reflected
in rising 10 year treasury yields rather than falling.

But, because the corporations refused to borrow and banks refused to
lend, in a classic Keynesain liquidity trap, and the rest of the world
continued to buy US treasuries with their trade surpluses from US
consumers, the dollar did not depreciate against the Yen and Euro until
recently and by not much. Even now the euro is only back at the exchange
value it adopted at the time of its intrduction. This was the first
major international empirical signal that this was not the same type of
economic contraction that we have experienced since the end of WW2.

Every other post war recession has been the result of the Fed
maintaining too tight a monetary policy as they preemptively tried to
predict and stop inflation. In other words the Fed caused every other
post WW2 recession up to and with the exception of this one.

Every time the Fed lowers rates, equity traders buy stock. This
exaggerates volatility in the stock market. Young traders, and trading
is a field dominated by youth, today have never experienced a market in
a true long wave economic down cycle rather than a Fed induced
contraction.  Economic down cycles have never been stopped by
monetary policy before. Greenspan's reputation had been built on
postponing the business cycle by flooding the system with money to feed
a debt bubble.  There are two problems with that approach: 1) a day of
rekoning can only be postponed but not avoided, and 2) debt is
unsustainable without inflation and fatal with deflation.

Driving down mortgage rates worked through 2002, but it has come to an
end. It brought Greenspan time but nothing else.  The interest rate
induced recovery will run out of steam by the thrid quater of 2003, not
withstanding the Fed optimistic pronouncement that the economy will
recover by then.  What the Fed is really saying id that the economy had
better recover by then or we will all be in the soup.

NEW YORK, Jul 15, 2003 (AP Online via COMTEX) -- Investors dumped
Treasury bonds Tuesday, sending yields higher, after Federal Reserve
Chairman Alan Greenspan indicated that the Fed would not buy back bonds
as a way to keep long-term interest rates low.

Greenspan's remarks, which came in one of his twice-yearly economic
reports to Congress, further disappointed bond investors following the
Fed's smaller-than-expected interest rate cut in late June.

Greenspan said he would likely use the Fed's main tool, cutting
short-term interest rates, to stimulate the economy. That disappointed
investors who hoped the Fed might buy back long-maturity bonds, which
would increase their value.

The price of the benchmark 10-year Treasury note fell 1 27/32 point, or
$18.44 per $1,000 in face value. Its yield, which moves in the opposite
direction, rose to 3.96 percent compared with 3.73 percent late Monday.

The 30-year Treasury bond fell 2 7/8 point to yield 4.95 percent, up
from 4.77 percent a day earlier, according to Moneyline Telerate.

The benchmark 2-year note fell 3/16 point to yield 1.45 percent, up from
1.35 percent Monday. Intermediate maturities fell between 7/16 point and
1 19/32 point.

Yields on one-month Treasury bills were 0.89 percent as the discount
rose 0.01 percentage point to 0.87 percent. Yields on three-month
Treasury bills were 0.91 percent as the discount rose 0.03 percentage
point to 0.89 percent. Six-month yields were 0.97 percent, as the
discount rose 0.02 percentage point to 0.95 percent.

Yields are the interest bonds pay by maturity, while the discount is the
interest at which they are sold.

The federal funds rate, the interest on overnight loans between banks,
rose to 1.19 percent from 1.06 percent late Monday.

In the tax-exempt market, the Bond Buyer index of 40 actively traded
municipal bonds fell 13/16 111 17/32. The average yield to maturity rose
to 4.97 percent from 4.90 percent.

A single speech by Alan Greenspan may have squashed what remained of a
tidal wave of mortgage refinancings that began three years ago.

The Federal Reserve chief spooked the bond market Tuesday when, during
his semiannual address to Congress, he said the central bank did not
plan to buy bonds on the open market. The comments caused mortgage
rates, which are tied to bond yields, to shoot up to their highest
levels in three months.

Within minutes after Greenspan completed his address Tuesday, lenders
said they were besieged with telephone calls from anxious homeowners
rushing to refinance before rates edged even higher.

"My fear is that we may be seeing the last, dying gasp of the 'refi'
boom," said Mark Ralston, senior loan officer at AccessOne Mortgage, a
mortgage banking and brokerage firm based in Raleigh. "Most people have
already refinanced. And those who were on the fence are doing it now."

And that could be bad news for the economy. Mortgage refinancings, in
which borrowers trade one mortgage for another at a lower interest rate,
have funneled billions of dollars into consumers' pockets over the past
three years. Borrowers have used the extra cash to renovate their homes,
buy cars and pay for their children's college education.

In mid-June, when the 30-year mortgage rate dipped to a 45-year low of
5.28 percent, lenders and mortgage brokers were overwhelmed with
mortgage refinancing requests. Some lenders turned away potential
business because they lacked the manpower to process the applications.

"I've been in this business 20 years, and I have never seen anything
like the amount of refinancings we saw in May and June," said David
Novak, a loan officer at Home Mortgage Company of North Carolina in
Cary. "It was almost out of control."

Now mortgage lenders say this refinancing wave may have crested, in the
same way that stocks peaked in March 2000. And most blame Greenspan.

About halfway through his address Tuesday, Greenspan said he saw no
imminent need for the Federal Reserve to buy bonds on the open market.
Earlier this year, the Fed had floated the idea of buying bonds, which
would have driven interest rates even lower.

When Greenspan pronounced that possibility "most unlikely," investors
and Wall Street traders began dumping large numbers of bonds. That
sell-off drove down bond prices and pushed up their yields, which move
inversely to each other.

Most lenders base mortgage loans on the 10-year bond's yield, which
jumped 0.26 percentage points Tuesday to 3.983 percent -- the highest
level since April.

Greenspan tempered his comments Wednesday, when he finished his
semiannual report to Congress, by saying that he has not ruled out
buying bonds to stimulate the economy. Yet that did not reassure bond
investors, as the yield on the 10-year bond remained high Wednesday at
3.92 percent.

Normally, mortgage lenders issue one set of mortgage rates in the
morning and leave them unchanged for the day. But within an hour after
Greenspan's speech, banks began increasing their mortgage rates in
response to the bond sell-off.

By Wednesday afternoon, the average rate on a 30-year mortgage had
jumped 22 basis points to 5.83 percent (a basis point is one-hundredth
of a percentage point), according to Bankrate.com of North Palm Beach, Fla.

The sharp increase caught some mortgage brokers off guard. Ralston of
AccessOne said he had to call back some borrowers Tuesday afternoon and
tell them that the rate he quoted them in the morning was no longer
accurate. In some cases, people who were considering plans to refinance
decided against it because of the rate increase.

"There is a profound sense of lost opportunity among people who did not
refinance three or four weeks ago," said Greg McBride, senior analyst at
Bankrate.com.

And the Fed's bullish comments on the economy suggest that mortgage
rates will continue edging up, McBride said. Also Tuesday, the Fed
released its semiannual report to Congress. In the report, the Fed
predicted that the U.S. economy will grow 3.75 percent to 4.75 percent
in 2004.

When the economy is growing, investors tend to prefer stocks over bonds.
As demand for bonds falls, their yields rise -- pushing up mortgage rates.

On 16 July 2003, the chairman of the US Federal Reserve delivered an
optimistic growth forecast and bond traders reacted with heavy selling
activity which sent yields at the long end of the curve soaring. Such a
reaction is not likely to be what Greenspan wanted, as low long-term
bond rates help to determine mortgage and corporate lending rates, and
can stimulate borrowing and spending. Traders, however, are wary of
being trapped with portfolios heavy with relatively expensive long-dated
Treasury bonds when interest rates eventually rise.

On 16 July 2003, Alan Greenspan, the chairman of the US Federal Reserve,
issued a surprisingly upbeat assessment of the US economy, and said that
the Reserve no longer felt it necessary to employ strategies such as
buying back bonds to protect against deflation. Bond market traders
responded with a global sell-off of long-dated bonds,

Even though Federal Reserve Board Chairman Alan Greenspan told Congress
on Tuesday that he wants to keep interest rates low to help the economy,
bond investors had other ideas.

The prices of long-term bonds plummeted -- and their yields soared --
shortly after Greenspan implied the Fed probably won't need to buy back
long-term bonds to contain deflation.

Higher yields on long-term bonds push up mortgage rates, and on Tuesday,
mortgage rates spiked up sharply. In the Bay Area, some 30-year fixed
rate mortgages are now close to 6 percent, nearly a full percentage
point from their lows in mid-June.

If rates continue to climb, they will crimp borrowing and spending and
weaken the fragile recovery -- the exact opposite of what Greenspan wants.

However, investors were struck not just by Greenspan's words but by his
tone. His words still reflected the Fed's readiness to cut rates if the
economy looks weak -- but his tone showed more confidence that won't be
necessary.

Only a few weeks ago, the Fed's main worry was on deflation, a
destructive cycle of falling prices and wages that erode the economy's
productive capacity. Not so much now, it appears.

"What was very, very important in May became lip service in June and is
somewhat secondary now," said Gary Schlossberg, senior economist at
Wells Capital Management in San Francisco.

In addition, Greenspan gave a fairly optimistic forecast for growth,
especially next year. Although he predicts the economy will expand at a
slow 2.5 percent to 2.75 percent this year, he thinks it will rebound at
3.75 percent to 4.75 percent in 2004. If so, unemployment could drop to
5.5 percent by the end of the year, he said.

Again, what's good news for the economy would depress bond prices from
the unusually high peaks now.

The price of the benchmark 10-year Treasury note sank $18.44 per $1,000
in face value. Its yield, which moves in the opposite direction, rose to
3.96 percent compared with 3.73 percent late Monday. The yield on the
30-year Treasury bond shot up to 4.95 percent on Tuesday from 4.77 the
day before.

That's a significant increase in yields from mid-June when the rate for
the 30-year Treasury bond was only 4.17 percent. But will rates continue
to rise or are they just bouncing up before they resume their downward
trend?

Gibbons Burke, the editor of markethistory.com, thinks a major change in
the bond market depends on whether the 30-year Treasury bond yield rises
above 5 percent -- roughly its level late last year and early this year.
If it does, then that will signal the end of declining rates, he said.
If it doesn't, rates could continue to stay low or sink.

"We're at the moment of truth," Burke said.

Bonds fell after Greenspan indicated the Fed would be unlikely to pursue
unconventional tactics against deflation such as buying up long-term
Treasuries, the Wall Street Journal reported.

Greenspan said the Fed will hold short-term interest rates low "as long
as it takes" and may even cut interest rates further if necessary.