The ghost of the “taper tantrum”
MONTHLY MARKET COMMENTARY |
Allow me to reminisce for a minute and bring you back two years to May 2013, when the Fed was in the middle of their third round of quantitative easing, known as QE3. As a reminder, quantitative easing is a policy used by central banks to try and stimulate an economy by pushing interest rates lower. Quantitative easing often results in more risk-taking activities among investors as their fixed income assets are receiving lower yields. In May 2013, Ben Bernanke (who was Fed Chairman at the time) announced that the Fed would begin to taper their ongoing bond purchases. The news quickly impacted financial markets, as interest rates moved noticeably higher (which move prices downward). This period was coined the "taper tantrum."
Two years later, in May 2015, investors started thinking about another "taper tantrum," as 10-year U.S. Treasury rates started in May at 2.05 percent and shot up to a closing high of 2.28 percent on May 13, a fairly dramatic increase over a two-week period. The increase was even more significant, when you consider the 10-year U.S. Treasury was at 1.85 percent on April 17, 2015. The recent increase was likely due to a number of factors, including an improving outlook for economic growth combined with an uncertain Fed policy. Interestingly, the 10-year U.S. Treasury rates fell as the month went on and closed at 2.10 percent.
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