The Fed may or may not scale back its bond-buying program. But the fears that they may has caused the market to go skittish on June 21. Fears that a healthy US economy could spell the end on the quantitative easing program (also known as “QE”) have spooked bond investors. The 10-year Treasury yield, which moves inversely to price, was up 3.93 percent to close at 2.5140. And the 5-year note was up even more, ringing in a 7.08 percent increase to close at 1.4060. Both notes have been volatile among uncertainty over what the Fed is going to do regarding purchases going forward, especially the 5-year. The 5-year note was highly erratic, seeing spikes and drops of over 8 percent during the single trading day.
David Ader, chief Treasury strategist at CRT Capital, said “There’s a tremendous amount of correlation in these markets right now, as we try to digest the new environment we’re in.” As Treasury 10-Year Yields hit their highest level in two years and the 5-year its highest in over a year, some analysts have suggested the market’s volatile behavior is temporary overreaction.
Joe Saluzzi, co-manager of trading at Themis Trading in Chatham, New Jersey said “(The reaction) just shows that the equity market is nervous and would react to any headline at this point.”
And Saluzzi’s view that the market is overreacting is certainly gaining traction. Major media outlets have began referring to this fear that the Fed’s stimulus will be tapered off before this has been confirmed and resulting market correction as a “Taper Tantrum.”