The US boom has created millions of jobs, thousands of paper millionaires and some very happy politicians.

The longest boom in US history also guaranteed that Federal Reserve chairman Alan Greenspan would get his job back.

The trick for Mr Greenspan now is to engineer a soft landing for the US economy. But has the volatility in the US bond market thrown a spanner in the works?

Bonds go loopy

Bonds are effectively IOUs.

Governments or companies borrow money and agree to pay a certain rate of interest (yield) for a period of time (maturity). When the bonds mature, the lenders or bondholders get the money back.

Usually, to get an idea of the direction of US interest rates, observers look at government bond yields, the rate of interest the US Treasury has to pay on its debt.

The longer the government wants to borrow money for, the higher the interest rate, reflecting the greater risk.

Hence, it should be possible to plot an upward curve of bond yields over 30 years.

Not so. In the past week, this theory - and the curve - has been turned on its head.

The benchmark US 30-year bond, usually called the long bond, offers investors a return of 6.27%. By contrast, the 10-year bond offers a yield of 6.56%

Rolling in cash

The buoyant economy means that Treasury Secretary Larry Summers not only needs to borrow less money, but can actually pay off some US debt.

Last week, he unveiled plans to cut the size and frequency of bond sales. As part of these plans - which include a debt buyback - there will be less 30-year bonds for sale.

The news sent shockwaves through US bond markets, sending long-term interest rates plunging.

Pundits speculate that this will make Mr Greenspan's job more difficult.

If it is cheaper for the US Government to borrow money, then the knock-on effect is that companies will also be able to borrow more cheaply.

This could lead to increased borrowing to fund corporate expansion which could prove inflationary for the US economy.

Lower bond yields can also make the equity market more attractive, fuelling the Wall Street bubble.

However, experts say technical factors mean this is unlikely to happen.

Cheaper money for corporates?

When Larry Summers said the US was to buy back some $30bn of its debt, for many traders, it meant just one thing: a shortage of long-dated bonds.

Hence, they scrambled to buy the long bond, forcing prices higher and pushing yields lower.

In theory, 30-year money now costs corporates less than 10-year money.

So will it spark a borrowing spree?

Unlikely, for two reasons.

Companies usually borrow money for shorter periods of time.

Secondly, recently investors have had difficulty "hedging" money - covering themselves in case the investment proves unsound - when they lend it to companies for a long period of time.

Hence if companies do want to borrow money for 30 years, they have to compensate investors for the difficulty they face hedging the loan.

They do this by paying a higher interest rate on their debt. This cancels out the effect of lower US government bond interest rates.

Who wants 30-year debt?

Mr Summer's plan to pay off debt does have other implications for investors.

Pension funds and life insurance companies typically invest in long-term high-quality bonds. They are natural buyers of the long bond. In its absence, what will they invest in?

The pension fund dilemma is complicated by the fact that they are strictly regulated as to what they can and can't buy.

At this stage, it is likely that the investment gap will be filled by high quality corporates.

Pension funds can also invest in US Government agency debt, which have an equally high credit rating.