Quantitative Easing Likely To Happen?

For the treasury market, more "quantitative easing" is a done deal: Investors are convinced that the Federal Reserve will have to launch another big bond-buying program by year end to prevent the economy from tumbling into another recession, says a recent Barron's article. The bond market has rallied over the past several weeks and investors have seen the economy continuously put out dismal numbers. Whether you are a fed official, an investor, or a normal citizen, most, if not all of us agree that the unemployment data is unacceptable. Sean Simko, head of fixed income at SEI, an Oaks, Pa., investment manager that oversees about $149 billion in assets says that "Unless the economy does a 180, QE2 will probably happen. The lingering question is how much and in what form." Barron's goes on to add that most market participants are projecting Fed buying will total $500 billion to $1 trillion, which would dwarf the $300 billion in Treasuries the Fed bought during its first-large-scale quantitative easing program last year. Just how much Treasury rates move on more QE will depend on the size and frequency of the buying. The Fed's last announcement of quantitative easing inspired just such a knee-jerk rally in the Treasury market, with the 10-year yield falling by about 50 basis points—from 3.01% to 2.54%, on the central bank's announcement that it would buy bonds. This time around, the initial move in Treasuries probably will again be strong.