“Taper Swoon”  in the bond market…….  Massive sell off, yields spike as investors try to parse recent indications from the Fed that it may slow down the $85 billion monthly bond purchases.  The 10 year T spiked from 1.75 to a high of 2.21% last week.  Today it stands at 2.10% as the Treasury rallied on poor economic data.  Often times in the “new normal” era, bad economic news triggers a rally in markets that have become “addicted” to extraordinary Fed stimulus such as QE3.  Bad news = continuing stimulus.  Note that the sell off was not triggered by any actual slowing of bond purchases, just on speculation that bond purchases may be tapered in a few months.  The sequence of the removal of Fed stimulus will most likely be (1) Less bond purchases; (2) No bond purchases; (3) Selling of bonds; (4) Raising of the discount rate.  Is this the beginning of the “training wheels coming off”?  Will the market effects be gradual or chaotic?  Remember, this is uncharted territory with no historical precedent….  For now, investors will be closely watching Friday’s employment numbers, Fed meeting (and Bernanke’s press conference) along with other “tea leaves”...
Milan Rubenstein Windy City RE LLC 161 E. Chicago Ave. 27B Chicago IL 60611 Phone 312-867-8744 Fax 312-803-2177 milan@windycityre.com www.windycityre.com