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BOND TAPERING: WHAT TO EXPECT WHEN THE FED TAPERS




There isn’t much historical experience with bond tapering. The first and last time it happened, it didn’t go so well, though it did give birth to one of those great Wall Street alliterations—the “taper tantrum.”


Before we examine what investors might expect with the Powell version of tapering, let’s examine what the first one looked like under Federal Reserve (the Fed) Chairman Ben Bernanke in 2013. When tapering plans were announced on May 22, 2013, markets reacted swiftly and harshly, selling bonds and igniting a surge in 10-year Treasury yields—from around 2% in May to 3% in December.

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