PrefBlog

Changes in Fed policy can disproportionate effects:

Federal Reserve Bank of St. Louis President James Bullard said Fed officials will probably be careful about altering the pace of their reductions to bond buying because of a potentially significant impact on markets.

“If we move off our baseline, it’s going to have pretty big repercussions,” Bullard said today in an interview at Bloomberg’s headquarters in New York. “We’d be cautious in using that — it’s going to have to be a situation where you’re pretty sure things are moving off track.”
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Bullard said the market’s reaction last June to a potential tapering, and the impact of the Fed’s surprise decision in September to maintain the pace of its asset purchases, illustrated that fluctuations in the amount of quantitative easing have “powerful” consequences.

In June, global equity markets lost $3 trillion in the five days after former Fed Chairman Ben S. Bernanke said he might reduce his $85 billion in monthly asset purchases that year and end them by mid-2014. In September, the Fed refrained from tapering, reversing a rise in bond yields and pushing back expectations for a tightening of monetary policy.

“In both of these cases, it showed it really matters a lot,” Bullard said. “Flow-based purchases have been really a powerful tool.”

Market movement was modest for Canadian preferred shares today, with PerpetualDiscounts off 2bp, FixedResets gaining 2bp and DeemedRetractibles up 3bp. The Performance Highlights table is notable for two winning Floating Rate issues. Volume was average.

This entry was posted on Thursday, February 13th, 2014 at 9:10 pm and is filed under Market Action. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.