While higher stock prices are often cited as the biggest beneficiary of the Fed’s several rounds of quantitative easing (QE), a lesser cited beneficiary has been overall market volatility and the credit markets. With each round of QE and/or “Operation Twist” we’ve seen measures of financial stress in the credit markets (like the Ted Spread or BBB corporate bond yields to 10yr UST yield spreads) contract as seen below. Similarly, whenever we’ve seen the cessation of QE we are treated to a spike in financial market stress and with the ending of the Fed’s recent QE program in October of 2014 we are already seeing the first signs of stress in the corporate bond market as BBB spreads to 10yr UST yields rise. In fact, they have risen so much that they have retraced all of the improvement seen since QE3 began.
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