Report
The effects of the decoupling of reduced bond purchases by the Federal Reserve and a hike in short-term interest rates
In the past, any reduction in bond purchases by the Federal Reserve (tapering) was quickly followed by a hike in short-term interest rates. As these two exits from highly expansionary monetary policies took place one after the other, the announcement of the reduction in purchases led to a rise in long-term interest rates. Today, however, the Federal Reserve has announced that it will completely decouple tapering from a rate hike. An announcement of a reduction in bond purchases no longer drives up long-term interest rates at all (we have just seen this in the United States), partly because it no longer announces a hike in short-term interest rates, and partly because investors understand that it is the stock of bonds held by the central bank that influences long-term interest rates, not the flow of bond purchases.
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Natixis
Based across the world’s leading financial centers, Natixis CIB Research offers an integrated view of the markets. The team provides support to inform Natixis clients’ investment and hedging decisions across all asset classes.
Patrick Artus
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