And asset bubbles are characterized by many investors chasing the same asset, and so there is generally wide-spread participation in the growth and nurturing of the bubble. Perhaps our recent asset bubble was the result of a perfect storm, one that will not recur for decades.
For this reason there is not usually a close relationship between long-term bond rates and the repo rate, although the yield curve may contain useful information about the stance of monetary policy, and the market’s expectations of future inflation and real activity. Interpreting the information contained in the yield curve or the yield spread is not always straightforward.