“In terms of timing, Fed policymakers are unlikely to want to risk the appearance of meddling in the election outcome, thus will likely hold off on any action until after November 2nd. The Fed has already made clear that the decision will be data dependent, so the November and December payroll reports will be critical”. —BCA Research
U.S. Treasurys: Quantitative Easing Already Priced?
Bond investors are pricing in a heightened probability of a new round of quantitative easing by the Federal Reserve, possibly before the end of the year, says research department of Bank Credit Analyst.
The 10-year term premium has compressed back below zero. Only once before has the term premium been this low, in late 2008 at the height of the financial panic that prompted a massive flight to safety.
“Our fixed income team estimates that if the market were to discount another 1 trillion dollars in Fed purchases, it would depress the 10-year Treasury yield to about 2%”.
Admittedly, the low term premium suggests that the benefits of additional asset purchases may have already been largely realized and the market response to additional asset purchases may be more modest than past episodes of QE.
http://www.bcaresearch.com/public/story.asp?pre=PRE-20101004.GIF
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