It was not too long ago that the world was perplexed by the so-called “Greenspan conundrum”, where there appeared to be a decoupling of monetary policy from long-term interest rates.
The increase in the US policy rate from 1 per cent in 2004 to 5, 25 per cent in 2006 had little or no impact on long-term US Treasury yields, ultimately resulting in low and stable long-term mortgage rates. This phenomenon raised concerns that a possible housing bubble was brewing in the US, concerns which were not unfounded.