The Federal Reserve finally moved forward with its long-awaited tapering of quantitative easing last week, reducing its purchases by $10 billion per month. Yet interest rates didn't spike higher, despite fears from investors that the Fed's pullback would send bond prices plunging.
In the following video, Dan Caplinger, The Motley Fool's director of investment planning, looks at the bond market and the impact that the taper could have on rates. Dan describes the exact impact of cutting $5 billion each from Treasury and agency securities purchases, noting that the combined impact of the Fed's pronouncement that it intends to keep short-term rates low even longer than expected, helped comfort investors in both stocks and bonds. Even though iShares 20+ Year Treasury (NASDAQ:TLT) and iShares TIPS Bond (NYSEMKT:TIP) initially posted losses, bonds recovered some of their lost ground, sending the bearish ProShares UltraShort 20+ Year Treasury (NYSEMKT:TBT) to a loss for the week. Dan concludes by noting that while rates will rise eventually, the attention will now move to how quickly the Fed continues its tapering activity in future months.