What happened to the “taper tantrum?”

Mortgage yields recover from first QE announcements

When the Federal Reserve first announced it was beginning quantitative easing, the stock markets furiously reacted, becoming what is now called the "taper tantrum."

However, almost a year later, an article in Bloomberg noted that today’s market for U.S. mortgage bonds make it look like the taper tantrum never happened.

Yields on government-backed securities that guide home-loan rates have dropped to the lowest in 16 months, erasing most of the increase triggered last year when the Federal Reserve signaled it would start scaling back its rate-suppressing stimulus measures.

“There’s so many people reaching for yield right now that, unless there’s a shock to these markets, the general trend is for prices to go up and yields to be very, very low,” said Laird Landmann, co-director of fixed-income at TCW Group Inc.

This is drastically different than how the stock market first looked when tapering was announced. After the second announcement, the industry talk even began questioning if the Fed would have to taper the taper.

"How can a Fed Chairman explain to all who are getting crushed financially that it's better than continued intervention?  Can you imagine Janet Yellen explaining that in her first month in office?  Seems impossible to me," Ethan Penner, founder of CBRE Capital Partners, said during that time.

The markets have adjusted a lot since then.

After falling 1.4% in 2013 in what was the first annual loss in 19 years, U.S.-backed mortgage bonds returned 4.9% this year through Oct. 7, or 0.49 percentage point more than similar-duration government notes, according to Bank of America Merrill Lynch index data. Those gains continued yesterday after minutes of a Fed meeting last month stoked speculation that policy makers’ concerns about the economy will delay a move to raise rates.

The latest Federal Open Market Committee meeting announcement can be found here

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