Long bonds usually have higher coupons than short ones, as investors demand a premium for exposure to the risk of interest-rate rises and inflation.

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Bonds pay interest based on the expected inflation rate until maturity, plus a fair risk premium over inflation based on the riskiness of the bond.

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The remaining yield on longer-term bonds is a risk premium that is commensurate with U.S. interest-rate volatility (Japanese risk premiums are lower, but they also have nearly zero interest-rate variability).

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Banks should like it because interest-only mortgages earn a premium rate and they get to lock in low-risk assets at their current depressed values.

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There would, on the other hand, be a useful fall in interest rates, because investors would no longer demand a premium for the risk that the exchange-rate peg would be broken.

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Mr. BRIAN MONTGOMERY (Federal Housing Commissioner, U.S. Department of Housing and Urban Development): And that's the main difference between FHA and the subprime, is we price for the risk with an insurance premium, whereas in most of the subprime world, they price the risk in the interest rate.

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