Fed "Taper" Is Good News For The Bond Market

[oldskeet]

Quoted from the article ...

"Investors are fretting over the prospect of a “Fed Taper,” but history shows such will likely be good news for the bond market. Currently, it doesn’t seem that way, with rates rising post-announcement. As noted by CNBC:

“While the Fed has gone into policy retreat before, it has never pulled back from such a dramatically accommodative position. For the past eighteen months, it bought at least $120 billion of bonds each month, Such provided unprecedented support to financial markets that it now will walk back.

The bond purchases have added more than $4 trillion to the Fed’s balance sheet which now stands at $8.5 trillion. Roughly, $7 trillion of which is the assets bought up through the Fed’s quantitative easing programs. The purchases helped keep interest rates low. Such provided support to markets that malfunctioned badly during the pandemic, and fueled a powerful run for the stock market.”

www.zerohedge.com/markets/fed-taper-good-news-bond-market

[uncleharley]

My thought is that the taper will be good for those investing for dividends and/or itnterest, but it will probably be rough on anyone that is looking for capital gains.

[Fearchar]

The FED has tapered before.

Take a look at the reserves of Depository on the FRED website.


fred.stlouisfed.org/series/TOTRESNS


Tapering occurred most recently back in 2014.
True, it was from lower levels, but they tapered and eventually sold back deposits.
They never got back to zero and they will probably never get back there either.
However, the key is that they take enough care so that the economy gradually returns to a normal monetary policy.

[yogibearbull]

Fearchar, uncleharley, the Fed now pays interest on depository reserves. It is small at 0.15% now but the banks don't mind parking idle balances at the Fed. In the old days, there was no incentive to leave funds at the Fed beyond what was required. The Fed has defended paying this interest by saying that it helps with its execution of its rate policy. www.federalreserve.gov/newsevents/pressreleases/monetary20211103a1.htm

[alvinthechipmunk]

Nov 23, 2021 13:10:02 GMT uncleharley said:

My thought is that the taper will be good for those investing for dividends and/or itnterest, but it will probably be rough on anyone that is looking for capital gains.

I sincerely hope you're correct. I'm in bonds long-term. Better choice than real cash or MM funds. Deliberately reducing stocks. If I ever get there, what I'm aiming for is 35% in equities. Meaningful, but less ups and downs all the time. A smoother ride, long-term. 

[Chahta]

Of course it will be good for income investors. Higher yielding bonds will eventually take over. But let’s hope they are not paying 10%.