The Unintended Consequences of a Flatter Yield Curve

It was supposed to be easy. When the Federal Reserve started hiking the federal funds rate, longer-term interest rates would rise. After all, they were at very low levels, restrained by a low-term premium. The “Greenspan conundrum” of the past two cycles, when long rates failed to respond in line with higher short rates, couldn’t happen a third time in such circumstances.

But it didn’t work out that way….

Continued at Bloomberg Prophets…