Tags: Feds | QE | 10-Year | Yields

Economists: Fed Cut 10-Year Yields by 1.4 Points in 2008-12

By    |   Sunday, 20 Apr 2014 07:19 PM

Most experts would agree that the Federal Reserve's quantitative easing (QE) has helped push long-term interest rates down.

Economists Iryna Kaminska of the International Monetary Fund (IMF) and Gabriele Zinna of Banca d'Italia attempt to quantify the effect in a paper for the IMF.

QE has involved the purchase of U.S. Treasurys, mortgage bonds and various other securities during its six-year tenure. It depressed 10-year Treasury yields by about 140 basis points, or 1.4 percentage points, between 2008 and 2012, the two economists estimate.

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The 10-year Treasury yield stood at 1.78 percent at the end of 2012, so theoretically it would have been 3.18 percent without QE if Kaminska and Zinna are correct. The rate stood at 2.73 percent Friday.

Foreign purchases of Treasurys also pushed yields down in 2008, the duo says. "Our findings also reveal that the Fed policy interventions and foreign official purchases affect longer-term real bonds mostly through a reduction in the bond premium."

A bond premium refers to a bond trading above its par value.

As the Fed tapers its QE, other investors will have to step up to buy bonds, or interest rates will rise. Domestic investors appear to be doing their part.

Excluding Treasurys held by the Fed, U.S. investors, such as mutual funds and pensions, have lifted their stake in long-term Treasurys to 33 percent since the 2008 financial crisis, according to the latest government data, Bloomberg reports.

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Two economists studying the Federal Reserve's quantitative easing estimate that the program depressed 10-year Treasury yields by about 140 basis points between 2008 and 2012.
Feds, QE, 10-Year, Yields
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2014-19-20
Sunday, 20 Apr 2014 07:19 PM
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