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Credit Insights

Is It 'Wait Till Next Year' for a Fed Taper?

If the FOMC does not make a change in policy at its next meeting, the committee's credibility will erode further, but it's also possible a taper might not happen until March.

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With the Federal Reserve refusing to dial down its highly accommodative easy money policy, corporate bond investors recaptured some of the losses they suffered earlier this year. As Treasury bonds rose last week, the Morningstar Corporate Bond Index rose 1.14%, though year to date, the index still registers a 2.99% loss. Most of the losses this year have been incurred from rising interest rates. 

In May, when the 10-year Treasury was well below 2%, we opined that as soon the Fed intimated that it would begin tapering its asset-purchase program, interest rates would quickly rise by 100-150 basis points. Since May, rates steadily moved higher, having risen about 125 basis points, and at their peak earlier this month reached almost 3%. The rising-interest-rate trend reversed course last week after the Federal Open Market Committee released its statement, which sent 10-year Treasury bond prices screaming higher, pushing their yield down 14 basis points to 2.73%.

David Sekera does not own (actual or beneficial) shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.

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