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

categories: Americas, EMEAI, Factor and Risk Modeling, Investing (Investment Management), Asia Pacific, Asset Owners, Hedge Funds, Fixed Income, Asset Pricing and Valuation, Research Paper, ZANGARI Peter, Asset Managers (Quant or Fundamental), ZHANG David, general

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.

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