12 09 2018 | by Victor Xing | Capital Markets
10 14 2018 | by Victor Xing | Capital Markets
Roundabout path in the snap-back of long-term bond yields
09 23 2018 | by Victor Xing | Central Banks
Calm before the storm as quantitative tightening looms
05 20 2018 | by Victor Xing | Central Banks
Alternative narrative on the natural rate of interest
01 07 2018 | by Victor Xing | Capital Markets
Flatter yield curve a symptom of ineffective tightening
12 04 2017 | by Victor Xing | Central Banks
Bond market term premium and wolves of Yellowstone
10 17 2017 | by Victor Xing | Capital Markets
How we learned to stop worrying and love the “fake markets”
09 20 2017 | by Victor Xing | Central Banks
QE’s distributional effects a rising political liability
04 18 2017 | by Victor Xing | Capital Markets
Persistent low volatility threatens active fund managers
02 17 2017 | by Victor Xing | Economics
Looming risks through the prism of bifurcated housing market
11 13 2015 | by Victor Xing | Capital Markets
Is quantitative easing reversible?
Yes indeed, effects of quantitative easing can be reversed. The reversal process is relatively easy to implement (by selling assets held on FED’s balance sheet, which were accumulated during QE programs), but it is generally considered a “last resort” due to severe financial market impacts.
Asset sales can directly affect part of the yield curve that is closely correlated with consumer lending – 5 to 10 year in maturity, and investors will not only price-in what the central bank will be selling, but also the pace which they will be selling in the future, not to mention how these sales will force other asset managers to sell their bonds to avoid losses.
Moreover, potential asset sales will likely take place under period of high realized inflation, making it likely that the central bank may sell assets AND raise short-term interest rates (thus push up the yield curve in parallel – there is no place for fixed income investors to escape).
Thus, mere hints of asset sales can easily result in a stampede that would rapidly raise borrowing cost and tighten financial conditions. Nevertheless, the process of reversing quantitative easing is mechanically simple to accomplish.
Next article11 13 2015 | by Victor Xing | Central Banks