While he did not appear too worried about inflation, Greenspan said the recent decline in long-term rates was hard to explain. His comments helped push yields on 10- and 30-year Treasuries higher.
After his remarks, the benchmark 10-year note fell 15/32 for a yield of 4.16 percent, from 4.10 percent on Tuesday. Reacting to the prospect of more rate hikes, two-year-notes dropped 3/32 to yield 3.41 percent, up from 3.36 percent Tuesday.
Still, traders noted the market was remarkably resilient, with 10-year yields still around 10 basis points lower than where they began the year.
Greenspan offered several explanations for the low long rate enigma. One element cited was strong demand from foreign central banks, which have bought Treasuries irrespective of market fundamentals.
Another was that mortgage investors might be buying longer-term securities to offset shorter duration among mortgage-backed securities, possibly contributing to downward pressure on long yields.
Regardless of the reason, the fact remained that bonds have tended to rally more often than not, despite widespread predictions for significant spikes in yields.
Greenspan may have been trying to reverse the trend with his words of caution.
"The surprise was the comments about long-term rates considered a conundrum," said Alan Ruskin, research director at 4Cast Ltd. "There is some hint that perhaps the bond market has got it wrong and yields shouldn't be this low. It is certainly bearish for the bond market."
The 30-year bond lost 19/32 for a yield of 4.52 percent from 4.49 percent Tuesday. Five-year notes slipped 10/32 to yield 3.78 percent.
Part of the resilience in the long end has been due to popular curve-flattening trades, bets that longer-dated securities would perform better than their shorter-dated counterparts as official interest rates climb.
The spread between 10- and two-year notes has narrowed dramatically in recent months, and at its current level of 76 basis points was still within reach of a 3-1/2-year low touched last week.
Economic figures released earlier in the day were of only minor importance. Housing starts last month gained by 4.7 percent to a nearly 21-year high, rising to a seasonally adjusted annual rate of 2.159 million units in January from an upwardly revised 2.063 million unit pace a month earlier.
The January total marked the highest pace of housing starts since February 1984, when they hit a 2.260 million unit pace.
Also, US industrial production was flat in January, undershooting expectations, though manufacturing output remained healthy. Analysts had expected January production at US factories, mines and utilities to rise 0.3 percent.