Wednesday, May 29, 2013

QE Exit to Rattle U.S. Bond Markets, Warns OECD

The Organisation for Economic Co-operation and Development is out with its twice-yearly Economic Outlook report. It's not pretty.In part it warns:

“Exit from unconventional monetary policy, when needed, may be difficult to manage and less smooth than desirable, possibly leading to sharp rises in bond yields and serious negative consequences for growth in a number of advanced and emerging economies,” Pier Carlo Padoan, OECD’s deputy secretary-general and chief economist, said in the report.

“A leap in U.S. government bond yields would result in capital losses for investors, and prices on other assets would most likely follow suit, with mortgage-backed securities and corporate bonds most strongly affected,” the OECD said in its report.

“In comparison with 1994, this could be more disruptive given the current higher leverage in the U.S. economy and financial system. Unless offset by portfolio shifts as investors move funds from bonds to equities, the higher long-term interest rate would weigh on equities and property valuations could also be marked lower.”

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