Equals are usually never as good as the original; however, we may be surprised with Taper Tantrum 2 which is now playing in Europe. The first Taper Tantrum occurred when Chairman Bernanke suggested that it was time to end quantitative easing on May 22, 2013 in testimony before Congress and on June 19th at a press conference. The sell-off was significant as noted by the 10 year yield change. The best simple description of the impact was that it caused a rate rise of 100 bps. By that measure we have more room for an increase.
Is this time different? The first Tantrum was somewhat of a surprise for the market, but the implications were less serious. The ending of QE3 was the first step in the normalization process but was not immediately associated with a rate rise by the Fed. The market, after it fully digested the news, rallied through 2014 by 100 bps with the belief that normalization would begin in 2015.
This Tantrum has started with EU bond markets where rates exploded on the upside from extreme lows. Some have suggested the cause was a change in sentiment which is catch-all phrase. Others have pointed to the fact that there was the belief that the ECB would not follow-through on their QE program. With rates rising in the EU, US rates were carried along even with slower growth and a delay in expectations.
What is unusual is the fact that a Fed delay based on slower data is now associated with a bond sell-off. This is different than the first Tantrum.
Is this time different? The first Tantrum was somewhat of a surprise for the market, but the implications were less serious. The ending of QE3 was the first step in the normalization process but was not immediately associated with a rate rise by the Fed. The market, after it fully digested the news, rallied through 2014 by 100 bps with the belief that normalization would begin in 2015.
This Tantrum has started with EU bond markets where rates exploded on the upside from extreme lows. Some have suggested the cause was a change in sentiment which is catch-all phrase. Others have pointed to the fact that there was the belief that the ECB would not follow-through on their QE program. With rates rising in the EU, US rates were carried along even with slower growth and a delay in expectations.
What is unusual is the fact that a Fed delay based on slower data is now associated with a bond sell-off. This is different than the first Tantrum.
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