Is the bond and equities markets at risk?
''U.S. central bankers have $3 trillion of losses reminding them they had better get their communications right should they decide to taper their bond purchases.
That's how much global equity markets declined in the five days after Federal Reserve Chairman Ben S. Bernanke's June 19 remarks that he may reduce his $85 billion in monthly securities buying this year and halt it altogether by mid-2014. His comments pushed the yield on the benchmark 10-year Treasury to a 22-month high.
Since then, he and his colleagues have sought to convince investors that paring stimulus doesn't signal a tightening of monetary policy. They will need to reinforce that message to prevent another premature interest-rate rise if the Federal Open Market Committee goes ahead with the move, said Ward McCarthy, chief financial economist at Jefferies LLC in New York.
"They want to get back to a neutral balance-sheet policy but that doesn't mean they want rates to skyrocket here," said McCarthy, a former Richmond Fed economist. "The market is hypersensitive," and the taper represents "the beginning of the end" of unprecedented monetary stimulus.
The Fed has kept its benchmark federal funds rate near zero since December 2008, and three rounds of so-called quantitative easing swelled its balance sheet to a record of $3.65 trillion.''