Getting Ahead of the Curve: How Taper 2.0 May Affect Bond Returns

Jul 24, 2017

How might the Fed’s plan to reduce its bond-buying program affect returns and risk for Treasurys and mortgage-backed securities? After nine years of quantitative easing, the Fed plans to reduce the amount of Treasury and mortgage-back securities it buys every month. The first time the Fed broached this idea, the market responded with a “taper tantrum.” This time, however, the Fed has made clear that it plans to pursue a conservative tapering policy and has communicated its plan more clearly. However, regime changes are possible if the market is uncertain about how the Fed will proceed.