The Federal Reserve will cut its bond buying from $85 billion per month to $75 billion per month. I think I found what is going to be my chart-to-track for the next few months: 10-year treasury vs. gold.
|Since 12/18/2013: 10-year treasury (blue; left) and gold price (red; right).|
From what I can gather, because of the taper, bond prices should drop -- forcing interest rates to rise -- and gold prices should drop as higher-yielding bonds become more attractive to investors. Will markets (investors) react accordingly (as they should (predicted))? The rule-of-thumb seems to be that as demand declines so will prices -- a proportional relationship. What if supply declines?
|Past 5-years: Federal government debt (credit instrument liabilities) (green; left) and federal government deficit (black; right).|
The federal deficit had been shrinking until the most recent recorded quarter -- Q3 2013. Federal government bonds (treasuries) are not the only bonds being purchased by the Federal Reserve -- I will cover the MBS later. Though for now, I am going to leave by putting the final focus on the Federal Reserve's guiding metric: the unemployment rate.