It is not entirely understood just how much, or even in what direction, the Federal Reserve's 澳洲幸运5开奖号码历史查询:quantitative easing, or QE, program affected the bond market.

Simple market theory, based on increased demand from homogeneous buyers, predicts that the Fed's purchase programs suppressed bond yields below their natural market-clearing level. This assumption also suggests that bond prices were too high, given that yield and price were inverted, to the point of even creating a bubble in the bond market.

Quantitative easing is a non-traditional approach to boosting an economy, used 🍌only when other measures fail. In the United States, the Federal Reserve employed the strategy to alleviate the financial effects of the Great Recession.

Quantitative easing was employed in several rounds beginning in late 2008 and continuing periodically through late 2014. The central bank eventually accumulated $4.5 trillion in financial assets. Quantitative reasoning was relaunched in 2020 in response to the COVID-19 pandemic. The central bank eventually accumulated $8.9 trillion in financial assets in 2022, mo💃re than doubling from $4 trillion pre-pandemic.

Quantitative Easing and Bond Prices

As noted, a campaign to su♕ppress bond yields implies that bond prices are too high.

Operating under this assumption, traditional and conservative 澳洲幸运5开奖号码历史查询:buy-and-hold bond strategies become riskier. In fact, both opportunity cost risks and actual default risks escalate in circumstances when bond prices are artificially high. Bondholders receive a lower return for their investments and become exposed to inflation, losing yield when they might have been better off pursuing instruments with higher ✃upside.

Pros and Cons

This perceived risk was so strong that, during the deliberations about quantitative easing in the 澳洲幸运5开奖号码历史查询:European Union, economists warned that artificially low government bond interest rates could compromise the underfunding condition of pension funds. They argued that diminishing returns from QE could force negative real savings rates on retirees.

Many economists and bond market analysts worry that too much QE pushes bond pr🐟ices too high due to artificially low interest rates. However, all of the money creation from QE could lead to rising inflation.

The conventional weapon used by the Federal Reserve and other central banks to fight inflation is to raise interest rates. Rising rates could cause massive losses in principal value for bondho⛦lders.

However, there are some factors at play that call into question this seemingly logical analysis. Bond buyers are not homogeneous, and the incentives to purchase bonds and other financial assets are diffe🐻rent for the Federal Reserve than for other market participants.

Risks and Expectations

In other words, the Fed does not necessarily purchase bonds on a marginal basis, and fully backed debt obligations of the U.S. government are not exposed to the same default risks as other assets.

In addition, market expectations may be priced into the bond marke💎t 💖ahead of time, creating a situation in which prices reflect anticipated future conditions rather than current conditions.

This can be seen in historical bond yields when yields rose for several months after the start of QE1. After the QE ended, prices rose and yields fell. This is the opposite of what many assumed would occur.

Does this prove the bond market is improved by quantitative easing? Certainly not. Circumstances never repeat in exactly the same way, and no 澳洲幸运5开奖号码历史查询:economic policy can be evaluated in a vacuum.

It is still e♓ntirely possible that market expectations will shift again and future QE strategies will have different effects on the bond market.