QE: What No Tapering Means for Bonds

Last night, the Fed announced that it was not ready to start tapering its quantitative easing policy, so what's next for US monetary policy and bond markets?

M&G Investments 19 September, 2013 | 11:28AM

This article is part of Morningstar's "Perspectives" series, written by third-party contributors. Here M&G's Anthony Doyle predicts what is next for US monetary policy and bond markets.

Last night the Federal Open Market Committee (FOMC) delivered a massive surprise by not deciding to not taper QE. For us, this isn’t a huge deal. Since May, the market has placed way too much emphasis and concern over tapering and lost focus on the fundamental economic situation that the US has now found itself in – an economy where unemployment has fallen to 7.3%, helped by a falling participation rate, and a central bank that remains dovish due to a declining trend in core inflation.

Now we are through the Fed meeting, arguably the market will now re-focus on the economic data. With interest rate policy set to remain very accommodative for a long period of time – even after balance sheet neutrality has been achieved – the sell-off in government bonds may be close to coming to an end, as witnessed by the 19 basis points fall in the US 10 year yield from 2.89% yesterday afternoon to 2.70% this morning.

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M&G Investments  is a leading retail and institutional fund manager.

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