NEW YORK and LONDON, Nov. 26, 2013 /PRNewswire/ -- The U.S. Federal Reserve could justify tapering its $85 billion quantitative easing (QE) program at any of its next three meetings based on the recent economic data, but January or March 2014 are more likely than December 2013, according to the November Bond Market Observations from Standish, the Boston-based fixed income specialist for BNY Mellon.
While positive reports on the U.S. economy could lead the Fed to reduce asset purchases sooner, the unresolved fiscal situation will more likely delay tapering until next year, Standish said. When the Fed finally does taper, modifications to its forward guidance could help soften the impact on Treasury yields and global financial markets, the report said. Enhanced forward guidance should increase the predictability of Fed policy and hold down interest rate volatility which in turn would be likely to benefit investment grade credit, high yield bonds and loans, and emerging market debt.
The Fed is contemplating several changes to its forward guidance including establishing an inflation floor and lowering the unemployment threshold. Standish believes the Fed is unlikely to take the latter action given the damage it might cause to Fed credibility. Successfully conveying forward guidance could lead to continued low interest rate volatility and a gradual rise in Treasury yields as economic fundamentals improve.
"The transition to higher rates could be rougher if investors confuse tapering with tightening," said Thomas Higgins, chief economist and global macro strategist for Standish and author of the report. "There's a danger investors could price in interest rate hikes sooner than the Fed intends once tapering begins."
However, the report adds the risk of another violent sell-off in the market, similar to the one in the spring and summer of 2013, is less likely given that long-term interest rates have already increased sharply. Furthermore, the Fed has said the federal funds rate is unlikely to rise before mid-2015.
Notes to Editors:
Standish Mellon Asset Management Company LLC, with approximately $163 billion of assets under management, provides investment management services across a broad spectrum of fixed income asset classes. These include corporate credit, emerging markets debt (dollar-denominated and local currency), core / core plus, tax–sensitive, short duration, stable value and opportunistic (U.S. and global) strategies. Standish also offers full service capabilities in insurance client strategies and liability driven investing. The firm includes assets managed by Standish personnel acting as dual officers of The Dreyfus Corporation and The Bank of New York Mellon and Alcentra NY, LLC personnel acting as dual officers of Standish.
BNY Mellon Investment Management is one of the world's leading investment management organizations and one of the top U.S. wealth managers, with $1.5 trillion in assets under management. It encompasses BNY Mellon's affiliated investment management firms, wealth management services and global distribution companies. More information can be found at www.bnymellon.com.
BNY Mellon is a global investments company dedicated to helping its clients manage and service their financial assets throughout the investment lifecycle. Whether providing financial services for institutions, corporations or individual investors, BNY Mellon delivers informed investment management and investment services in 35 countries and more than 100 markets. As of Sept. 30, 2013, BNY Mellon had $27.4 trillion in assets under custody and/or administration, and $1.5 trillion in assets under management. BNY Mellon can act as a single point of contact for clients looking to create, trade, hold, manage, service, distribute or restructure investments. BNY Mellon is the corporate brand of The Bank of New York Mellon Corporation (NYSE: BK). Additional information is available on www.bnymellon.com, or follow us on Twitter @BNYMellon.
All information source BNY Mellon as of Sept. 30, 2013. This press release is qualified for issuance in the UK, Europe and US and is for information purposes only. It does not constitute an offer or solicitation of securities or investment services or an endorsement thereof in any jurisdiction or in any circumstance in which such offer or solicitation is unlawful or not authorized. Any views and opinions contained in this document are those of the author as at the date of issue; are subject to change and should not be taken as investment advice. BNYMAMI and its affiliates are not responsible for any subsequent investment advice given based on the information supplied. This press release is issued by BNY Mellon Investment Management (US) and BNY Mellon Asset Management International Limited (ex-US) to members of the financial press and media and the information contained herein should not be construed as investment advice. Past performance is not a guide to future performance. The value of investments and the income from them is not guaranteed and can fall as well as rise due to stock market and currency movements. When you sell your investment you may get back less than you originally invested. Registered office of BNY Mellon Asset Management International Limited: BNY Mellon Centre, 160 Queen Victoria Street, London, EC4V 4LA. Registered in England no. 1118580. Authorized and regulated by the Financial Conduct Authority. A BNY Mellon Company.
SOURCE BNY Mellon