Is Ben Bernanke Finally Wrong?

Has anyone looked at the yield curve since QE3 was announced? Well the Fed published a paper within the last two years outlining the importance of immediate market moves as feedback for Fed policy. The rationale is that beyond the first 24-48 hours the impact of Fed announcements is less traceable due to other market news and events. Thus the Fed themselves observe interest rate impacts of major announcements and speeches to assess the efficacy of Fed Policy.

Interestingly enough, looking at Treasury Yield Curves for the 24 hour periods immediately following the announcement of QE1, QE2 and Operation Twist, term rates across the yield curve generally tightened (fell). However in the 24 hours after the announcement of QE3, all rates outside of 3 years actually increased.

I’m not claiming to know more than the next guy, but I’d be shocked if Uncle Ben thought he’d be kicking out the longer end of the curve. Granted the announcement was for MBS purchases and we can look at those curves, but widening treasury yields has negative implications throughout the bond market.

I’m not judging that the move was wrong, but I am questioning the strength of stocks and credit exposure which have both rallied since Thursday.


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