A large majority of market commentators has attributed the recent, sharp rise in the 10-year U.S. T-Bond yield – from 1.63% in early May to 2.20% this week – to growing expectations that the Federal Reserve will be “tapering” its “quantitative easing” (QE) programs. These commentators presume, of course, that QEs actually reduce T-Bond yields. After all, they insist, when the Fed buys billions in T-Bonds, that must necessarily bid up their price and, by the sheer math of it, reduce their yield. Indeed, that’s also the Fed’s story: that its QE schemes logically lower yields, and in so doing, boost credit creation and the economy.
Yet the facts contradict the story.
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