When QEIII slows

In Financial competency on 18/06/2013 at 5:45 am

“Defensive” stocks (those that do not move with the business cycle, like food) are the most vulnerable.

When investors began to expect there would be a reduction in the Federal Reserve’s quantitative easing bond-buying programme towards the end of this year, from monthly purchases of $85bn a month to perhaps $65bn. the perception that the rate of money creation might fall by around a quarter has seen bond yields rise by more than a third and the US 10-year yield is now firmly lodged above 2% (circa 2.2% the last time I looked).

By historical standards 2% is still very low. But the yield shift from circa 1.5% to circa 2.2% is dramatic.

The best analogy is with an earthquake deep under the sea, which causes powerful waves in all the world’s oceans or, in this case, in all the world’s markets.

(BBC analyst)


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