I believe that the CAB (Controller, Antilock Brake) is seeing the voltage from the rear sensor drop below the minimum threshold, thus causing it to think the rear wheels have suddenly stopped turning; thus ABS is engaged. In a properly functioning vehicle, the speedo drops out around 3-2 MPH, and the CAB is programmed not to engage at such slow speeds.
The only way to tell for certain is to connect an oscilloscope to the rear sensor and ensure that it is putting out at least 2V (I think) at slow speeds. As the speed increases, the voltage increases; this is why the brakes work fine until a certain low speed.
If the rear sensor is OK, then you need to check the voltage at the CAB itself. If the voltage is low, you probably have a problem with the twisted pair wiring between the CAB and the sensor. If the voltage is OK, the CAB might be faulty, or the connection(s) might be faulty. One other thing to check is the ground from the CAB; make sure it is in fine fettle.
I figured all this out when I was playing with my Abbott speedometer/odometer adjuster, trying to get it to work between the CAB and the PCM. I finally gave up and bought a TruSpeed unit, which has been working great ever since; the speedo and odo are less than 1% off, as measured via 100 miles on the highway.