As Matthew Lynn correctly identifies below, right now there is only one thing markets want to know about – QE. Today, it is whether or not tapering will go ahead in the US, but last week it was about Draghi’s easy monetary policy.
The reason for deteriorating liquidity in bond markets is due in part to yields being unnaturally low. If you price bonds too highly, few investors want to buy them without the unconditional support of the central bank as a ready buyer.
The collapse in the markets today has not been pretty. This article will focus on the news provided by Bernanke that preceded today’s market anxiety. We’ll also look at some factors that may explain today’s market interpretation as well as look through the spin to find a glimmer of reality.