Two weeks ago, Ben Bernanke and the Federal Reserve announced plans to purchase several hundred billion dollars worth of Treasuries over the coming months. The plan is informally known as QE2, or quantitative easing round two.
The goal of this policy is clear: lower Treasury yields. This should, the textbooks say, encourage investment and risk-taking.
How's it working so far?
While QE2 was officially announced Nov. 3, it's been widely expected since Aug. 27, when Bernanke gave a speech in Jackson Hole, Wyo., hinting that another round of quantitative easing was in the works. Here's what 10-year Treasury yields have done since:
Source: Yahoo! Finance and author's calculations.
Unimpressive, to say the least. Not only are yields higher today than they were when the plan was announced two weeks ago, but higher than they were in August, when the plan was mere speculation.
There are a few explanations for this. One, yields may be higher because investors are spooked at the possibility QE2 could cause runaway inflation. Two, yields could be higher because economic data has been fairly positive lately, a sign the economy is improving and chasing investors out of safe-haven Treasuries.
In any event, here's what's clear: If the goal of QE2 is to drive down yields, it isn't working. Something else that's clear: Treasury yields are still lower than the dividend yields on high-quality companies such as Procter & Gamble
Treasuries aren't doing anyone any good these days. Not for you, and not for Bernanke.
