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Not exactly. Long terms rates have actually risen* from this announcement. The short term effect is, yes, more demand for treasuries which pushes yield down, bu
by cjlars 14y ago
Not exactly. Long terms rates have actually risen* from this announcement. The short term effect is, yes, more demand for treasuries which pushes yield down, but the long term effect is higher inflation, which pushes yields up. Following the same reasoning, this is indeed good for stocks, since there's both a liquidity effect (more money that has to go somewhere) and an inflationary effect (larger future cash flows increase present value)
*http://www.treasury.gov/resource-center/data-chart-center/interest-rates/Pages/TextView.aspx?data=yield http://www.treasury.gov/resource-center/data-chart-center/in...
- RockyMcNuts 14y agowell, sometimes there are second order effects... The Fed is committing to lower rates to boost the economy... traders say, I think they're going to succeed in boosting the economy...that means some rates should go up! Paradoxically, if people decide that the economy is going to do better, and then they invest and spend more and long rates go up, the Fed thinks 'mission accomplished'. Neverthless, as a first order approximation I would stand by the notion that buying bonds makes their prices go up, rates go down. But yeah, if the policy is successful it will steepen the yield curve.