Greenspan Faces Jilted Treasury Market

Unfortunately, Bianco is skeptical that there's anything the chairman can say to placate the Treasury market's new breed of vigilantes. "Then again, I've never understood how you can increase inflation expectations and decrease rates at the same time," he said, referring to the unusual combination Greenspan is trying to create.

As with most things involving Greenspan, there's another side to this story. Tuesday's selloff was mainly focused in long-dated Treasuries because the chairman dampened hopes the Fed would take the unusual step of buying such securities, as had been widely anticipated in recent months. As a result, the yield curve -- or the spread between yields on short- and long-term Treasuries -- widened sharply.

The yield on the benchmark 10-year note settled Tuesday at 3.91%, while the yield on the two-year note was 1.47%. That's the widest gap since November 1992, Bloomberg reported, and compares with a sub-2-point spread as recently as May 23.

Positively sloped yield curves are generally believed to be harbingers of improving economic activity. By contrast, inverted yield curves -- when short-term rates exceed long-term rates -- often presage recessions. Therefore, optimists are likely to be encouraged by Tuesday's Treasury market action and equity bulls relish any and all references to 1992, when the 1990s bull market was in its nascent stage.

Then again, there was tremendous pent-up demand from consumers in the early 1990s and the Internet "revolution" lay ahead. Today, by contrast, corporations are still reeling from the largely misguided spending on online ventures, while the American consumer is mainly satiated after a spending splurge. Notably, that spending was largely facilitated by generational lows in interest rates, something that appears to be reversing in rapid fashion.

Yes indeed, Alan Greenspan will find himself in a tight spot on Capitol Hill Wednesday. Although most equity investors will be focused on Tuesday's barrage of postclose news -- including earnings from Intel (INTC - Cramer's Take - Stockpickr) and Citigroup's (C - Cramer's Take - Stockpickr) offer for Sears' (S - Cramer's Take - Stockpickr) credit card business -- rest assured the Treasury market will be listening closely to the chairman.